Starting next year, some Americans will witness a major change in how they can save for retirement. The IRS has issued new rules under the SECURE 2.0 Act. This will affect workers aged 50 and above who earn $145,000 or more a year. These top earners will no longer be able to make their 401(k) catch-up contributions on a pre-tax basis. Instead, they must contribute to after-tax Roth accounts.
What are catch-up contributions?
Catch-up contributions allow workers aged 50 and older to save extra money into their retirement accounts in addition to the standard contribution limit. For 2025, the Standard 401(k) contribution limit is $23,500 (for workers under 50), the catch-up contribution limit for 50+ is $7,500, and the “Super” catch-up for ages 60-63 is $11,250.
Until now, employees were given an option to choose in order to make these contributions to either a traditional pre-tax account or a Roth after-tax account, depending on what their employer’s plan allowed. Pre-tax contributions lower your taxes now, while Roth contributions grow without taxes and can be taken out tax-free in retirement.
How the rules will change?
From 2026 onwards, anyone earning $145,000 or more will have to make all catch-up contributions to a Roth account. This means, top earners will lose the upfront tax deduction on catch-up contributions. Contributions would still grow tax-free, and withdrawals are tax-free in retirement, but the immediate tax benefit is gone. The income threshold may adjust slightly over time with inflation, and for those earning less than $145,000, the choice between pre-tax and Roth catch-ups remains the same.
Some workers may face issues, especially if an employer-sponsored plan does not offer a Roth option. In that case, employees may be temporarily unable to make catch-up contributions until Roth accounts become available. Recent data shows many employers are exploring Roth options.
According to the Wall Street Journal, “employers have been adding Roth 401(k) options, with Fidelity now including it as an option in 95% of managed plans, up from 73% two years ago, while 86% of Vanguard-managed 401(k) plans offer a Roth.”
Switching to Roth catch-ups has its own set of pros and cons, which include tax-free growth, tax-free withdrawals in retirement, no minimum withdrawals at age 73, and diversification of tax strategy. However, it also results in higher taxes today, since contributions are made with after-tax dollars.
Experts recommend reviewing your retirement account. For example, if most savings are in traditional accounts, Roth contributions can provide tax flexibility later. Some top earners may also consider accelerating pre-tax contributions before 2026 to benefit from current tax deductions.