eginning in 2026, a significant change to retirement plan catch-up contributions takes effect. Part of the 2022 Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act, the change affects higher-income taxpayers age 50 and older who contribute to certain types of employer-sponsored retirement plans.
Catch-up contribution basics
For years, taxpayers age 50 or older have been able to make catch-up contributions to certain employer-sponsored retirement plans, up to annual inflation-adjusted limits. For 2026, eligible individuals can contribute an additional $8,000 above the $24,500 regular 401(k), 403(b) or 457(b) plan limit, for a total of $32,500.
Under SECURE 2.0, beginning in 2025, participants age 60 to 63 can make up to $11,250 in catch-up contributions to these plans, bringing the maximum to $35,750 for 2026.
Before 2026, employees could make catch-up contributions pretax to traditional plans or, if their employer offered the option, after-tax to Roth plans. Pretax contributions reduce taxable income for the year contributed, but distributions are generally taxable. Roth contributions don't reduce current-year taxable income, but distributions are generally tax-free.
Mandatory Roth treatment for high earners
SECURE 2.0 requires that, beginning in 2026, any catch-up contributions made by higher-income participants to 401(k), 403(b) or 457(b) plans be designated as Roth contributions.
The Roth requirement was originally scheduled to take effect for 2024. In 2023, the IRS extended the effective date to January 1, 2026.
For 2026, the Roth requirement applies to participants whose 2025 Social Security wages from the employer exceeded $150,000 as reflected in Box 3 of Form W-2, ''Wage and Tax Statement.'' The $150,000 threshold will be adjusted annually for inflation.
Are you affected?
Plans that didn't offer a Roth option in 2025 had to either add one for 2026 or eliminate higher-income participants' ability to make catch-up contributions. So if the Roth requirement applies to you and your retirement plan doesn't offer a Roth option, you won't be able to make catch-up contributions in 2026.
Check with your employer about your options. It may have implemented a ''deemed election'' approach for employees subject to the new rules. This automatically treats catch-up contributions as Roth unless the employee opts out of catch-up contributions.
Also, keep in mind that making Roth catch-up contributions instead of traditional ones (or not making catch-up contributions) will increase your taxable income for 2026. This may reduce or eliminate the tax benefits of breaks that are subject to phaseouts, floors or other income-based limits and even push you into a higher tax bracket.
Professional guidance can help
If you're affected, you should review your retirement and tax strategies in light of the changes. Professional guidance can help improve outcomes. Contact us with any questions.
SIDEBAR:
2025 IRA contribution deadline
It's not too late to boost your IRA for 2025. You have until April 15, 2026, to make contributions for the 2025 tax year. This deadline applies to both traditional and Roth IRAs and includes catchup contributions for eligible individuals.
You must indicate that the contribution is for the 2025 tax year, not 2026. This is important because contributions made from January 1 through April 15 can be designated for either the prior year or the current year.