A 55-year-old software engineer earning $185,000 has been maxing out her 401(k) for years, including the $7,500 catch-up contribution that goes straight into a pre-tax account. That option no longer exists for her. Starting with the 2026 plan year, every dollar of her catch-up contribution must flow into a Roth account, taxed now instead of in retirement. The rule is final, the IRS has published binding regulations, and employers across the country are racing to retool their plans before the first paycheck of the new plan year goes out.
The change affects millions of workers who earn $150,000 or more and are old enough to make catch-up contributions. Here is how it works, what it costs, and what you should do about it before the deadline passes you by.
The rule, explained
This mandate comes from Section 603 of the SECURE 2.0 Act, signed into law in December 2022. The provision requires workers whose prior-year wages from a single employer equal or exceed an indexed threshold to make all catch-up contributions on a Roth, after-tax basis. Congress originally pegged the threshold at $145,000, but cost-of-living adjustments pushed it to $150,000 for 2025. Because the rule looks backward at prior-year wages, that 2025 figure is the trigger for the 2026 plan year.
The Treasury Department and IRS published final regulations in late 2025 locking down the operational details. An IRS news release confirmed the core requirement: affected participants age 50 and older must direct their catch-up dollars into a designated Roth account within the plan. Pre-tax catch-up deferrals are off the table for anyone above the wage line.
Workers below $150,000 in prior-year wages keep their current options. They can still choose between pre-tax and Roth catch-up contributions, assuming their plan offers both.
One detail that often gets lost: the rule also applies to 403(b) plans and governmental 457(b) plans, not just 401(k)s. Teachers, hospital employees, and state workers above the threshold face the same Roth mandate. Traditional IRAs, which have their own separate catch-up rules, are not affected.
The dollars at stake
For 2025, the standard 401(k) elective deferral limit is $23,500. Workers age 50 and older can add $7,500 in catch-up contributions, bringing the total potential deferral to $31,000. A separate SECURE 2.0 provision (Section 109) creates an enhanced “super catch-up” of up to $11,250 for participants ages 60 through 63, pushing their ceiling even higher.
Under the old rules, a 55-year-old earning $180,000 could funnel that entire $7,500 catch-up into a pre-tax account, shaving the same amount off current taxable income. Under the new rule, that $7,500 lands on the Roth side. At a 24% marginal federal rate, the immediate additional federal tax cost is roughly $1,800 per year. At 32%, it climbs to about $2,400. Add state income taxes in places like California or New York, and the bite grows larger still.
The tradeoff is that Roth dollars grow tax-free and come out tax-free in retirement. That can be a powerful advantage for workers who expect to stay in a high bracket after they stop working, or who want to shrink required minimum distributions later. But the upfront cost is real, and it arrives at a stage of life when many workers are also juggling college tuition, mortgage payments, or caregiving expenses for aging parents.
One important clarification: employer matching contributions are not touched by this rule. Matches continue flowing into a pre-tax account unless the employer has separately elected Roth matching, a newer option also enabled by SECURE 2.0. The Roth mandate applies only to the employee’s own catch-up dollars.
What employers must do
The final regulations create a hard compliance obligation for plan sponsors. If a 401(k), 403(b), or governmental 457(b) plan wants to keep offering catch-up contributions to participants who might cross the $150,000 wage threshold, the plan must include a designated Roth account. Plans that lack a Roth feature cannot accept any catch-up contributions from high earners, effectively cutting those workers off from the extra savings opportunity altogether.
That requirement has forced many employers to bolt on Roth options they had previously skipped. Plan administrators also need systems capable of tracking each participant’s prior-year wages and routing catch-up dollars to the correct account type on a person-by-person basis. Payroll providers and recordkeepers have been building these capabilities during a transition period the IRS granted through Notice 2023-62, published in August 2023. That transition window closed at the end of 2025, and the final regulations now supply binding operational rules, including correction procedures for contributions mistakenly made on a pre-tax basis when Roth treatment was required.
“Plan sponsors who have not yet added a Roth feature to their 401(k) are running out of runway,” Ellen Lander, a retirement plan consultant and founder of Renaissance Benefit Advisors Group, told InvestmentNews in early 2026. “If the Roth account is not in place, those high-earning participants simply cannot make catch-up contributions at all. That is a benefit reduction, and it is going to generate questions from your most senior employees.”
For HR and benefits teams, the spring 2026 checklist includes confirming that plan documents have been amended, that payroll coding is accurate for the current plan year, and that affected employees have received clear, written communication about the change and its tax consequences.
Gaps that still need answers
Even with final regulations on the books, several practical questions remain open.
The thorniest involves workers with multiple employers. Someone earning $80,000 from one job and $75,000 from another may or may not trigger the $150,000 threshold depending on how each employer’s plan applies the wage rules. The final regulations reference existing tax-code definitions of compensation, but the IRS has not published worked examples or case studies showing how multi-employer scenarios play out in practice.
“The multi-employer aggregation question is the one keeping plan administrators up at night,” said David Levine, a principal at Groom Law Group who advises retirement plan sponsors. “Each employer only knows what it pays. Without clear IRS examples, there is a real risk of inconsistent application across the industry.”
Enforcement specifics are also thin. The regulations describe the compliance framework, but Treasury officials have not publicly detailed enforcement priorities or outlined specific penalties for plans that fail to implement mandatory Roth treatment on time. General correction mechanisms for plan qualification failures exist under current tax law, yet no targeted enforcement guidance for this provision has appeared as of May 2026.
Then there is the behavioral question no regulation can answer in advance: will high-income workers keep saving at the same rate once catch-up dollars carry a steeper immediate tax cost? Some may scale back contributions. Others may redirect savings into taxable brokerage accounts, health savings accounts, or backdoor Roth IRA strategies. Real-world data on that shift will not surface until the rule has been in effect for at least a full plan year.
What affected workers should do now
If you earned $150,000 or more from a single employer in 2025, the action items are concrete and time-sensitive.
Verify your plan’s Roth option. Confirm with your employer or plan administrator that the plan now includes a designated Roth account and that payroll systems are configured to route your catch-up contributions correctly. If your plan has not added a Roth option, you may lose the ability to make catch-up contributions entirely for 2026.
Revisit your tax projections. The shift to Roth catch-up contributions increases your current-year taxable income. If you are near a bracket boundary or managing other tax-sensitive events (stock option exercises, rental income, a spouse’s variable earnings), the additional taxable income could ripple into estimated tax payments, Medicare premium surcharges (IRMAA), or eligibility for certain deductions and credits.
“This is not just a retirement planning issue; it is a current-year tax planning issue,” said Mark Luscombe, a principal federal tax analyst at Wolters Kluwer Tax & Accounting. “Workers who have been on autopilot with their 401(k) contributions need to sit down with a tax professional and model the impact before the first paycheck of the plan year goes out.”
Decide if forced Roth treatment actually works in your favor. Workers who expect their tax rate in retirement to match or exceed their current rate stand to benefit from paying taxes now on catch-up dollars. Those who anticipate a significantly lower rate after they stop working might prefer to redirect savings elsewhere, though giving up the tax-sheltered growth inside a 401(k) is a meaningful cost that should not be dismissed lightly.
Do not overlook the super catch-up. If you are between 60 and 63, your catch-up limit jumps to $11,250 under SECURE 2.0. That higher amount is also subject to the Roth mandate if you are above the wage threshold, but the larger contribution room can turbocharge tax-free growth in the years just before retirement.
A new tax reality that demands attention, not panic
The regulatory machinery behind this change is settled. What remains is execution: employers updating their plan documents, payroll systems routing dollars to the right accounts, and workers recalibrating their savings strategies for a tax landscape that looks different starting with the 2026 plan year. The workers who come out ahead will be the ones who treat this not as a bureaucratic nuisance but as a prompt to pressure-test their entire retirement tax plan while there is still time to adjust.
Published May 2026. This article is based on final IRS and Treasury Department regulations, the SECURE 2.0 Act of 2022, IRS notices, and Internal Revenue Bulletin publications. It does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.
Paul Anderson is a finance writer and editor at The Financial Wire. He has spent seven years writing about investment strategies and the global economy for digital publications across the US and UK. His work focuses on making sense of economic policy, cost-of-living issues, and the stories that affect everyday Americans.
