Mandatory Roth Catch-up Contributions for High Wage Earners - Secure Act 2.0
Starting in 2026, individuals that make over $145,000 in wages will no longer be able to make pre-tax catch-up contributions to their employer-sponsored retirement plan. Instead, they will be forced to make catch-up contributions in Roth dollars which means that they will no longer receive a tax deduction for those contributions.
This, unfortunately, was not the only change that the IRS made to the catch-up contribution rules with the passing of the Secure Act 2.0 on December 23, 2022. Other changes will take effect in 2025 to further complicate what historically has been a very simple and straightforward component of saving for retirement.
Even though this change will not take effect until 2026, your wage for 2025 may determine whether or not you will qualify to make pre-tax catch-up contributions in the 2026 tax year. In addition, high wage earners may implement tax strategies in 2025, knowing that they are going to lose this sizable tax deduction in the 2024 tax year.
Effective Date Delayed Until 2026
Originally when the Secure Act 2.0 was passed, the Mandatory 401(K) Roth Catch-up was schedule to become effective in 2024. However, in August 2023, the IRS released a formal notice delaying the effective date until 2026. This was most likely a result of 401(k) service providers reaching out to the IRS requesting for the delay so the IRS has more time to provide much need additional guidance on this new rule as well as time for the 401(k) service providers to update their systems to comply with the new rules.
Before Secure Act 2.0
Before the Secure Act 2.0 was passed, the concept of making catch-up contributions to your employer-sponsored retirement account was very easy. If you were age 50 or older at any time during that tax year, you were able to contribute the maximum employee deferral amount for the year PLUS an additional catch-up contribution. For 2023, the annual contribution limits for the various types of employer-sponsored retirement plans that have employee deferrals are as follows:
401(k) / 403(b)
EE Deferral Limit: $22,500
Catch-up Limit: $7,500
Total $30,000
Simple IRA
EE Deferral Limit: $15,500
Catch-up Limit: $3,500
Total $19,000
You had the option to contribute the full amount, all Pre-tax, all Roth, or any combination of the two. It was more common for individuals to make their catch-up contributions with pre-tax dollars because normally, taxpayers are in their highest income earning years right before they retire, and they typically prefer to take that income off the table now and pay tax in it in retirement when their income is lower and subject to lower tax rates.
Mandatory Roth Catch-Up Contributions
Beginning in 2026, the catch-up contribution game is going to completely change for high wage earners. Starting in 2026, if you are age 50 or older, and you made more than $145,000 in WAGES in the PREVIOUS tax year with the SAME employer, you would be forced to make your catch-up contributions in ROTH dollars to your QUALIFIED retirement plan. I purposefully all capped a number of the words in that sentence, and I will now explain why.
Employees that have “Wages”
This catch-up contribution restriction only applies to individuals that have WAGES over $145,000 in the previous calendar year. Wages meaning W2. Since many self-employed individuals do not have “wages” (partners or sole proprietors) it would appear that they are not subject to this restriction and will be allowed to continue making pre-tax catch-up contribution regardless of their income.
On the surface, this probably seems unfair because you could have a W2 employee that makes $200,000 and they are forced to make their catch-up contribution to the Roth source but then you have a sole proprietor that also makes $200,000 but they can continue to make their catch-up contributions all pre-tax. Why would the IRS allow this?
The $145,000 income threshold is based on the individual’s wages in the PREVIOUS calendar year and it’s not uncommon for self-employed individuals to have no idea what their net income will be until their tax return is complete, which might not be until September or October of the following year.
Wages in the Previous Tax Year
For taxpayers that have wages, they will have to look back at their W2 from the previous calendar year to determine whether or not they will be eligible to make their catch-up contribution in pre-tax dollars for the current calendar year.
For example, it’s January 2026, Tim is 52 years old, and his W2 wages with his current employer were $160,000 in 2025. Since Jim’s wages were over the $145,000 threshold in 2025, if he wants to make the catch-up contribution to his retirement account in 2026, he would be forced to make those catch-up contributions to the Roth source in the plan so he would not receive a tax deduction for those contributions.
Wages With The Same Employer
When the Secure Act 2.0 mentions the $145,000 wage limit, it refers to wages in the previous calendar year from the “employer sponsoring the plan”. So it’s not based on your W2 income with any employer but rather your current employer. If you made $180,000 in W2 income in 2025 from XYZ Inc. but then you decide to switch jobs to ABC Inc. in 2026, since you did not have any wages from ABC Inc. in 2026, there are no wages with your current employer to assess the $145,000 threshold which would make you eligible to make your catch-up contributions all in pre-tax dollars to ABC Inc. 401(K) plan for 2026 even though your W2 wages with XYZ Inc. were over the $145,000 limit in 2025.
This would also be true for someone that is hired mid-year with a new employer. For example, Sarah is 54 and was hired by Software Inc. on July 1, 2026, with an annual salary of $180,000. Since Sarah had no wages from Software Inc. in 2025, she would be eligible to make her catch-up contribution all in pre-tax dollars. But it gets better for Sarah, she will also be able to make a pre-tax catch-up contribution in 2026 too. For the 2026 plan year, they look back at Sarah’s 2024 W2 to determine whether or not here wages were over the $145,000 threshold, since she only works for half of the year, her total wages were $90,000, which is below the $145,000 threshold.
If Sarah continues to work for Software Inc. into 2027, that would be the first year that she would be forced to make her catch-up contribution to the Roth source because she would have had a full year of wages in 2026, equaling $180,000.
$145,000 Wage Limit Indexed for Inflation
There is language in the new tax bill to index the $145,000 wage threshold for inflation meaning after 2024, it will most likely increase that wage threshold by small amount each year. So while I use the $145,000 in many of the examples, the wage threshold may be higher by the time we reach the 2026 effective date.
The Plan Must Allow Roth Contributions
Not all 401(k) plans allow employees to make Roth contributions to their plan. Roth deferrals are an optional feature that an employer can choose to either offer or not offer to their employees. However, with this new mandatory Roth catch-up rule for high wage earners, if the plan includes employees that are eligible to make catch-up contributions and who earned over $145,000 in the previous year, if the plan does not allow Roth contributions, it does not just block the high wage earning employees from making catch-up contributions, it blocks ALL employees in the plan from making catch-up contributions regardless of whether an employee made over or under the $145,000 wage threshold in the previous year.
Based on this restriction, I’m assuming you will see a lot of employer-sponsored qualified retirement plans that currently do not allow Roth contributions to amend their plans to allow these types of contributions starting in 2026 so all of the employees age 50 and older do not get shut out of making catch-up contributions.
Simple IRA Plans: No Mandatory Roth Catch-up
Good news for Simple IRA Plans, this new Roth Catch-up Restriction for high wage earners only applies to “qualified plans” (401(k), 403(b), and 457(b) plans), and Simple IRAs are not considered “qualified plans.” So employees that are covered by Simple IRA plans can make as much as they want in wages, and they will still be eligible to make catch-up contributions to their Simple IRA, all pre-tax.
That’s a big win for Simple IRA plans starting in 2026, on top of the fact that the Secure Act 2.0 will also allow employees covered by Simple IRA plans to make Roth Employee Deferrals beginning in 2025. Prior to the Secure Act 2.0, only pre-tax deferrals were allowed to be made to Simple IRA accounts.
Roth Contributions
A quick reminder on how Roth contributions work in retirement plans. Roth contributions are made with AFTER-TAX dollars, meaning you pay income tax on those contributions now, but all the investment returns made within the Roth source are withdrawn tax-free in retirement, as long as you are over the age of 59½, and the contributions have been in your retirement account for at least 5 years.
For example, you make a $7,000 Roth catch-up contribution today, over the next 10 years, let’s assume that $7,000 grows to $15,000, after reaching age 59½, you can withdraw the full $15,000 tax-free. This is different from traditional pre-tax contributions, where you take a tax deduction now for the $7,000, but then when you withdraw the $15,000 in retirement, you pay tax on ALL of it.
It’s So Complex Now
One of the most common questions that I receive is, “What is the maximum amount that I can contribute to my employer-sponsored plan?”
Prior to Secure Act 2.0, there were 3 questions to arrive at the answer:
What type of plan are you covered by?
How old are you?
What is your compensation for this year?
Starting in 2024, I will have to ask the following questions:
What type of plan are you covered by?
If it’s a qualified plan, do they allow Roth catch-up contributions?
How old are you?
Are you a W2 employee or self-employed?
Did you work for the same employer last year?
If yes, what were your total W2 wages last year?
What is your compensation/wage for this year? (max 100% of comp EE deferral rule limit)
While this list has become noticeably longer, in 2025, the Secure Act 2.0 will add additional complexity and questions to this list when the “Additional Catch-up Contributions for Ages 60 - 63” go into effect. We will cover that fun in another article.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
