The New Roth Catch-Up Rule: What You Need to Know
Are you a high-wage earner over 50 and planning ahead for retirement, or do you help manage retirement plans for employees who are? There’s an important change on the horizon that could affect how you save for retirement.
The SECURE 2.0 Act of 2022
Beginning January 1, 2026, a new provision under the SECURE 2.0 Act of 2022 will require certain high-wage earners (HWEs) to make their catch-up contributions on a Roth basis rather than before-tax.
The new requirement mandates that if you earned more than $145,000 (adjusted for inflation annually) in Social Security wages from your current employer in the previous year, your additional 401(k), 403(b), or 457(b) contributions will have to be made with post-tax dollars. This means no immediate tax deduction on those contributions, but future withdrawals can be tax-free, assuming Roth conditions are met.
For employees under that income threshold or for self-employed individuals, traditional before-tax catch-up contributions remain an option.
Why This Matters
For HWEs, this shift could impact tax planning and retirement strategies. Roth contributions don’t provide an immediate tax deduction, but they grow tax-free and can be withdrawn tax-free in retirement if certain conditions are met. While this could benefit some in the long run, it may also mean a higher current-year tax bill for those used to making before-tax contributions.
For employers, it also introduces some administrative considerations. Plans that don’t currently offer a Roth option may need to add one to ensure HWEs can continue making catch-up contributions since wages for all employees must be tracked.
How We Got Here
Under current law, participants aged 50 and older can make additional “catch-up” contributions to their retirement accounts, up to $7,500 in 2025. Another SECURE 2.0 Act provision increases this amount to $11,250 for employees between the ages of 60-63 in 2025. Historically, these catch-up contributions could be made on either a before-tax (traditional) or Roth (post-tax) basis, depending on the plan provisions and participant elections.
The SECURE 2.0 Act of 2022 was designed to strengthen retirement security across the country. Section 603 of that law created this Roth requirement, originally slated to begin in 2024. The IRS delayed implementation to 2026, giving the industry more time to update systems and educate participants.
What to Do Next
If you sponsor a retirement plan, now’s the time to review whether your plan includes a Roth feature. If it doesn’t, your high-earning employees could lose the ability to make catch-up contributions entirely once this rule takes effect.
Talk with your TrueNorth team to help navigate these updates, assess your plan’s readiness, and position you or your business to meet the new requirements while keeping your needs front and center.
Disclosure: TrueNorth does not provide tax or legal advice, but we are happy to work with your tax professional and attorney.
