Workers 50 and older who earn well above average pay can no longer choose whether their catch-up retirement contributions go in before tax or after tax. For anyone whose wages crossed a set threshold last year, the catch-up money going into a 401(k) or similar plan this year has to be Roth, meaning it is taxed now instead of when it eventually comes out.
The $150,000 wage line that decides Roth or pretax
The rule applies to people age 50 or older who participate in a 401(k), 403(b), governmental 457(b) plan, or the federal government’s Thrift Savings Plan, as long as the plan offers a Roth option and permits catch-up contributions in the first place. It does not apply to SIMPLE IRA or SIMPLE 401(k) catch-up amounts, which follow their own separate limits.
The Internal Revenue Service’s retirement-plan guidance confirms that participants whose prior-year wages from the plan sponsor exceeded $150,000, indexed for 2026, must make their catch-up contributions on a Roth basis rather than pretax. For 2026, the standard catch-up limit is $8,000, while workers who turn 60, 61, 62 or 63 during the year get a higher $11,250 catch-up limit under a separate SECURE 2.0 provision.
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Why plan sponsors had years to prepare
The mandate originates in the SECURE 2.0 Act, signed in December 2022, but the Treasury Department and IRS did not finalize the rules for how plans should apply it until September 15, 2025. Those final regulations confirm that an earlier administrative transition period, which had let plans skip the Roth requirement without penalty, generally ended December 31, 2025, while permitting plans to apply the requirement earlier using a good-faith reading of the law.
That timeline is why the requirement reads as brand new in 2026 even though the underlying law is several years old. Sponsors spent the interim waiting on the technical guidance needed to program the rule into payroll and plan-administration systems, and the compliance grace period covering that wait did not extend past the end of 2025.
What happens to a plan with no Roth option
A plan that has never offered Roth contributions faces a harder choice. Under the mandate described in the IRS’s own catch-up contribution guidance, a plan sponsor either amends the plan to add a Roth feature or effectively cuts off catch-up contributions for any participant earning above the wage threshold, since the law does not allow those contributions to continue on a pretax basis once the line is crossed.
The final regulations also let a plan sponsor combine wages a participant earned from more than one common-law employer under the same controlled group when deciding whether the $150,000 threshold was crossed, closing a gap that might otherwise have let some highly paid workers avoid the requirement by moving between related employers within the same year.
Where a Roth-only catch-up changes the tax math
Losing the choice between pretax and Roth catch-up contributions changes how much taxable income shows up this year versus in retirement, and it interacts directly with whatever else is happening in a household’s tax bracket for the year the contribution is made. Filling that Roth bracket space deliberately, rather than by default, is where the actual planning decision sits once the mandate applies.
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This article was researched and drafted with the help of AI and reviewed by The Financial Wire editorial team before publication.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
