Workers over age 50 who earned more than $150,000 from their employer last year will lose the option to shelter their 401(k) catch-up contributions from taxes upfront. Starting in 2026, those higher earners must direct catch-up dollars into after-tax Roth accounts if their plan offers the feature. The Treasury Department and the IRS finalized the rule through regulations published in Internal Revenue Bulletin 2025-40, ending years of uncertainty about how this piece of the SECURE 2.0 Act would actually work.
Why the $150,000 Roth catch-up threshold changes retirement math
The immediate consequence is straightforward but financially significant. A worker aged 50 or older who made more than $150,000 in FICA wages from their plan sponsor in the prior year can no longer make pre-tax catch-up contributions to a 401(k), 403(b), or governmental 457(b) plan that includes a Roth option. Every catch-up dollar must go in as a designated Roth contribution, meaning the money is taxed before it enters the account rather than when it comes out in retirement.
That shift hits take-home pay directly. A participant who previously deferred catch-up amounts on a pre-tax basis reduced their current taxable income by the full contribution. Under the new rule, the same contribution no longer lowers this year’s tax bill. The trade-off is that qualified Roth withdrawals in retirement are tax-free, but for someone in peak earning years who expects a lower tax bracket after they stop working, the forced Roth treatment can mean paying more in total taxes over a lifetime.
The rule also creates a compliance burden for employers. Plans that never offered a Roth option now face a choice: add Roth features to stay in compliance, or stop offering catch-up contributions to higher earners altogether. That second path would strip a savings tool from the very workers closest to retirement. Plans that do add Roth accounts solely to satisfy the mandate may see reduced participation among earners just above the $150,000 line, particularly if those workers are unfamiliar with Roth mechanics or reluctant to absorb the upfront tax cost without guidance from their employer.
Final IRS regulations lock in the SECURE 2.0 Roth catch-up mandate
The Treasury Department and IRS issued final regulations under IR-2025-91, covering both the Roth catch-up requirement and related SECURE 2.0 provisions. The regulations amend sections 401(k), 403(b), and 414(v) of the Internal Revenue Code and were formally published in Internal Revenue Bulletin 2025-40. The codified rule at 26 CFR 1.414(v)-2 spells out operational details, including special timing provisions for collectively bargained plans.
The $150,000 wage threshold is measured by FICA wages paid by the plan sponsor in the prior year. That means the determination uses W-2 compensation from a single employer, not total household income or adjusted gross income. A worker earning $140,000 from one employer and $50,000 from a side business would fall below the threshold for the primary employer’s plan. The test resets each year, so a one-time bonus that pushes wages above $150,000 could trigger mandatory Roth treatment for the following year’s catch-up contributions even if base salary sits well below the line.
The IRS had previously announced an administrative transition period after the original SECURE 2.0 language created confusion about whether plans without Roth features could continue offering any catch-up contributions at all. That transition window gave plan sponsors time to update systems. With the final regulations now published, the 2026 start date is firm, and plans are expected to have their payroll and recordkeeping processes aligned with the new Roth-only requirement for affected workers.
Open questions around plan adoption and participant behavior
Several practical issues remain unresolved. No publicly available IRS or Treasury dataset shows how many active 401(k) participants earned above the $150,000 threshold or how much they collectively contribute in catch-up dollars each year. Without that baseline, it is difficult to measure the rule’s aggregate impact on retirement savings or federal tax revenue.
Employers and recordkeepers have not disclosed, through any primary regulatory source, how far along their systems upgrades stand. Plans that already offered Roth accounts before 2026 have a head start, but plans adding the feature from scratch must build new payroll coding, update enrollment materials, and train staff on contribution tracking. The final regulations do not prescribe a specific communication timeline for notifying affected participants, leaving it to plan sponsors to decide when and how to inform workers that their catch-up dollars will change tax character.
The treatment of multiemployer and collectively bargained plans adds another layer of complexity. The codified regulation includes special applicability timing for these arrangements, but the primary regulatory text does not provide detailed numerical examples of how the delayed effective date works in practice for plans covering workers under multiple collective bargaining agreements. That lack of illustration may leave some plan fiduciaries and union representatives seeking additional interpretive guidance or private letter rulings before making operational changes.
Behavioral responses are also uncertain. Some higher earners may welcome the shift, viewing the Roth mandate as a forced nudge toward tax diversification in retirement. Others may simply reduce or stop catch-up contributions rather than accept a higher current-year tax bill. Without data on participation patterns before and after 2026, policymakers will have limited visibility into whether the rule meaningfully changes savings behavior or merely reshuffles dollars among different account types.
What workers near the threshold should do now
For workers approaching the threshold, the most immediate step is to check last year’s W-2 wages from their current employer. Anyone whose FICA wages from that employer exceeded $150,000 will be treated as a higher earner for purposes of the following year’s catch-up contributions. If the employer’s plan offers a Roth option, those catch-up dollars will have to be made on an after-tax basis beginning in 2026.
Workers who expect to cross the threshold intermittently-because of variable bonuses, commissions, or overtime-may want to plan for year-to-year swings. In a year when wages fall below $150,000, pre-tax catch-up contributions can still be available if the plan permits them. In a year when wages exceed the line, the same worker will be locked into Roth treatment. That variability could complicate long-term tax planning, especially for households coordinating multiple retirement accounts.
Participants who strongly prefer pre-tax deferrals might respond by increasing their regular (non-catch-up) pre-tax contributions earlier in the year, up to the annual limit, and then accepting that any additional catch-up amounts must go to Roth. Others may decide that the Roth requirement is a reasonable price for keeping total savings high, particularly if they are unsure what future tax rates will look like in retirement.
Financial professionals are likely to emphasize that the rule does not reduce the total dollar amount a worker can contribute as catch-up; it only changes the tax treatment. For many savers, especially those who anticipate higher tax rates later or value tax-free withdrawals, the mandated Roth contributions could ultimately prove beneficial. Still, the loss of choice is significant for workers who preferred to manage their own mix of pre-tax and Roth dollars.
How employers can prepare for 2026
Plan sponsors that do not currently offer a Roth feature will need to decide whether to introduce one or eliminate catch-up contributions for affected workers. Adding a Roth option generally requires coordination among payroll, human resources, and the plan’s recordkeeper to ensure that contributions are coded correctly, limits are monitored, and participant statements clearly distinguish between pre-tax and Roth balances.
Employers may also want to review plan documents and summary plan descriptions to confirm that they reflect the new requirements. While the final regulations under IR-2025-91 do not mandate a specific form of participant notice, clear communication-through open enrollment materials, intranet posts, or targeted emails-can reduce confusion when the first Roth-only catch-up contributions begin appearing on pay stubs.
Ultimately, the Roth catch-up mandate represents a targeted but meaningful shift in how higher-earning older workers fund their retirement accounts. By tying eligibility to a fixed wage threshold and channeling catch-up dollars into after-tax accounts, the rule blends revenue-raising goals with a push toward tax diversification. Its real-world impact will depend on how employers implement the change and how workers adapt their saving strategies in response.
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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.
