Key Questions: What’s Changing with Catch-Up Contributions in 2026 (previously 2024)?

The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 of 2022 was signed into law on December 23, 2022, and provided much in the way of increasing retirement savings. In general, the Act gives taxpayers more options with respect to retirement savings using traditional compared with Roth options. However, there are some areas in which that decision was taken out of the taxpayer’s hands. One of them has to do with the catch-up provisions for high earners.

Catch-up Provision

Currently, as a way for older workers to save more for retirement, the catch-up provisions allow taxpayers older than 50 to make an additional $7,500 contribution to 401(k), 403(b), and 457(b) plans. This is over and above the normal annual limits allowed as elective deferrals. For a traditional IRA, the catch-up is $1,000 (starting in 2024, this amount is indexed for inflation in $100 increments,) and for SIMPLE IRAs, the catch-up is $3,500. In general, the annual catch-up contributions are indexed for inflation.

Depending on a taxpayer’s situation, as long as a plan sponsor permits a Roth account option, they could choose whether they want their catch-up contribution to be made on a pre-tax or Roth basis.

Contributing on a Roth basis through an employer retirement plan is generally a good strategy, since there are no income limits; it allows for tax free growth for life; and amounts later withdrawn in retirement would be tax-free. For high wage earners, this was a good way to be able to save in a tax-free bucket. They would forgo the pre-tax nature of the contribution in exchange for the tax-free growth.

Under SECURE 2.0, originally set to start in 2024, it would have required that certain high-paid employees (those with wages in the preceding calendar year greater than $145,000) make their catch-up contributions on a Roth basis (after-tax basis). In other words, the catch-up contribution for a high-earner couldn’t be made on a pretax basis. The wage limit would be adjusted for inflation in the future. Since the law uses the term “wages,” this appears to mean that self-employed individuals with income greater than $145,000 would still have the opportunity to make their catch-up contributions on a pre-tax basis.

401(k) and similar plans can include a Roth component, but they are not required to do so. And the new law does not have a requirement to create a Roth account option either. So, the initial question when the law was passed was, “What happens when employees who are required to make Roth catch-up contributions (i.e., those whose previous-year wages exceeded $145,000) are unable to do so because their employers don’t have a Roth option?”

SECURE 2.0 seemed to imply that if an employer's plan included employees eligible to make catch-up contributions and who earned more than $145,000 in the previous year, but if the plan didn't include a Roth catchup contribution option, then no one would be allowed to make catch-up contributions, regardless of their previous-year wages. This meant that no one would be allowed to make a catch-up contribution at all – an outcome that didn’t seem to be what Congress intended.

In July this year, we were put on notice that Congress intended to issue a few SECURE 2.0 technical corrections. Congress’ intent was that participants under the wage limit could still make catch up contributions on either a pre-tax or Roth basis, even if a plan sponsor didn’t have a Roth option.

Delayed until 2026 Now

Additionally, just a few weeks ago the IRS announced in IRS Notice 2023-62 it would delay the implementation of the new rules governing catch-up contributions.

In order to facilitate an orderly transition for compliance, the Notice announced a 2-year administrative transition period with respect to the requirement under SECURE 2.0 that catch-up contributions made on behalf of certain eligible participants be designated as Roth contributions. So, those who make more than $145,000 and are older than 50 have until 2026 to still make a pre-tax catch-up contribution, or choose a Roth contribution. It’s just not mandatory that it be to a Roth account yet.

What’s New for 2025?

Workers age 60, 61, 62, or 63 are able to contribute a catch-up amount equal to the greater of $10,000 or 50% more than the regular catch-up amount (indexed for inflation after 2025) to a 401(k) or 403(b), and participants in SIMPLE IRAs can contribute an additional $5,000 (indexed for inflation). This is not required to be made to a Roth account.

Conclusion

High earners that elect to make age 50 and older catchup contribution can still choose between making a pretax contribution or a Roth account contribution. Starting in 2026, the age 50 and older catch-up contribution for high earners must be made on a Roth account basis. This will be a mandatory requirement. The good thing is that both the 50 and older catch-up contribution and the additional catch-ups for those age 60, 61, 62, or 63 after 2025 will enable people to save more for retirement later in life.

For more information, please contact your advisor.