IRS Finalizes Rules on 401(k) Catch-Up Contributions

If you’re 50 or older and planning to make catch-up contributions to your 401(k), big changes are on the way – especially if you’re a higher-income earner.

The IRS recently issued final regulations under the SECURE 2.0 Act, and they clarify exactly how these contributions must be handled starting in 2026.

Here’s a breakdown of what’s changing, why it matters, and what you need to know to prepare.

 

What’s Changing with 401(k) Catch-Up Contributions?

Under SECURE 2.0, employees ages 50 and older can make additional “catch-up contributions” beyond the standard 401(k) contribution limit. 

These are designed to help workers boost their savings as they near retirement.

But starting in 2026, there’s a major shift: If your wages from the previous year exceeded $145,000 in FICA wages or more (indexed for inflation), those catch-up contributions can no longer be pre-tax.¹ 

They must be made as Roth contributions instead.

That means you’ll pay taxes on the money now, but qualified withdrawals in retirement will be tax-free…a trade-off that could benefit you long-term depending on your future tax bracket.

This new rule applies to most employer-sponsored retirement plans, including:

• 401(k)
• 403(b)
• Governmental 457(b)
• SIMPLE 401(k)
• SARSEP and SIMPLE IRAs

The IRS’s final regulations technically go into effect in 2027, but plans must operate in good faith starting in 2026.²

 

Why the IRS Made These Changes

This isn’t a brand-new idea the IRS came up with – it was actually part of the SECURE 2.0 Act, which became law back in 2022. 

The law included a rule that required certain higher earners to make their catch-up contributions as Roth (after-tax), but it didn’t spell out all the details.

So now, the IRS is simply clarifying how it will work and giving employers and retirement plans the instructions they need to follow the law starting in 2026.

 

When Does This Take Effect?

While the IRS’s final regulations don’t become mandatory until January 1, 2027, the Roth catch-up contribution rule starts January 1, 2026.

That means plans need to start following the law in 2026, but the IRS will allow them to use a “reasonable, good faith interpretation” until the final rules are fully enforced in 2027.³

Governmental and union (collectively bargained) plans may have extra time to comply depending on their structure.

 

What If Your Employer Doesn’t Offer the Roth Option ?

If your plan doesn’t allow Roth contributions, it won’t be allowed to offer catch-up contributions at all for high-income earners starting in 2026.

Employers must update their plans to include Roth options or lose the ability to offer this important savings benefit.

 

What Happens If a Plan Makes a Mistake?

Mistakes can happen, and the IRS has built in a little grace period. If an employer accidentally accepts a pre-tax catch-up contribution when it should’ve been Roth, they can correct it by:

• Moving the funds to a Roth account
• Reporting the change on the W-2 or issuing a 1099-R for an in-plan Roth rollover

But no correction is required if:

• The mistake is under $250, or
• The employee was only pushed over the $145,000 limit because of a late W-2 correction

 

What If Your Income Drops below the Limit Later?

If your income falls below $145,000 in a future year, your employer can stop the Roth-only requirement. But under the final rules, employers can choose to keep treating your catch-up contributions as Roth for a short time—even if you’re no longer required to.

This is known as a “reasonable period” of continued Roth treatment, and the IRS hasn’t defined exactly how long that period can be. It’s something employers will need to decide as they update their plan documents.

 

Additional Catch-Up Opportunity for Ages 60 to 63

Starting in 2025, employees between ages 60 and 63 can contribute an even higher catch-up amount than the standard $7,500.

This “super catch-up” amount is indexed for inflation and provides an extra way for late-career savers to bulk up their retirement savings.

However, just like other catch-up contributions, if your wages exceed $145,000, they must be made as Roth contributions.

 

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Sources: 

1. https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-on-new-roth-catch-up-rule-other-secure-2point0-act-provisions 
2. https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-on-new-roth-catch-up-rule-other-secure-2point0-act-provisions 
3. https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-on-new-roth-catch-up-rule-other-secure-2point0-act-provisions