The Treasury Department has issued final regulations implementing one of SECURE 2.0's most significant provisions: mandatory Roth catch-up contributions for “high earners”. This rule impacts retirement planning for Americans aged 50 and older starting in 2027 based on 2026 income.
The Former Law
Prior to this change, workers aged 50 and older could make "catch-up contributions" beyond the standard 401(k) deferral limit, which was $23,000 for 2024. These catch-ups allowed an additional $7,500 for most plans or $3,500 for SIMPLE plans, and could be made on either a pre-tax or Roth (after-tax) basis, at the participant's election.
This flexibility allowed higher earners in peak earning years to maximize pre-tax deferrals, reducing current taxable income while building retirement savings. Many high earners preferred this approach, believing they'd be in lower tax brackets during retirement. The system essentially let you choose: pay taxes now on Roth contributions, or defer taxes until retirement with traditional pre-tax contributions.
What's Changed
Section 603 of the SECURE 2.0 Act created a new requirement that eliminates this choice for high earners. Participants with FICA wages exceeding $145,000 (adjusted annually for inflation) from their employer in the prior calendar year must make catch-up contributions as designated Roth contributions.
Here's how it works in practice. Your Social Security wages from Box 3 of your W-2 from the prior year determine whether you're subject to this requirement. For 2027, if your 2026 Box 3 wages exceeded $145,000, you're required to make any catch-up contributions as Roth contributions. There's no choice, no election, no opting out.
It's important to understand that only catch-up contributions must be Roth. Your regular contributions up to the standard limit can still be made pre-tax if you prefer. So if you're under 50 or not making catch-up contributions, nothing changes for you. This requirement specifically targets that extra amount above the normal limit that older workers can contribute.
The wage calculation happens on a per-employer basis, which creates some interesting planning scenarios. Wages aren't aggregated across unrelated employers. If you work for two companies earning $100,000 from each, neither employer separately exceeds the threshold, so you wouldn't be subject to the Roth requirement at either plan. This is different from how many people might intuitively think the rule would work.
There are also some important exemptions worth understanding. State and local government employees without Social Security coverage are exempt from this requirement. Partners with only self-employment income are also exempt because the rule specifically requires FICA wages, not just general earnings. Additionally, SEP and SIMPLE IRA participants aren't subject to this mandate.
Enhanced Catch-Up Limits
There's actually some positive news buried in these changes. Section 109 of SECURE 2.0 increased catch-up limits for participants aged 60 through 63. Instead of the standard $7,500 catch-up, workers in this age range can contribute up to $11,250, which is 150% of the regular catch-up amount. For SIMPLE plans, the increase is to $5,250. This recognizes that the years immediately before retirement are critical for catch-up savings, and many people reach their peak earning years during this window.
The rationale makes sense when you think about it. Someone at age 60 might have finally paid off their mortgage, finished funding their kids' education, and received their highest salary increases. They have perhaps five to seven years before retirement to maximize savings. The enhanced limit acknowledges this reality.
Implementation Details
The regulations provide practical guidance for how plan sponsors should handle this change. Plans can establish what's called a "deemed election" that automatically treats catch-ups as Roth for affected participants. However, employees must have an "effective opportunity" to make a different election if they choose. This creates an interesting dynamic where the default is Roth, but workers can opt for a different approach, like reducing their overall contributions or making no catch-ups at all.
The Treasury Department also created two new correction methods for when mistakes happen, which they inevitably will during the transition. If pre-tax catch-ups are made in error, plans can either transfer the amount to a Roth account and report it on the Form W-2 (if this happens before the W-2 is filed), or process an in-plan Roth conversion reported on Form 1099-R. There's even a de minimis exception where failures under $250 don't require correction at all.
Recognizing that some plans need more time, governmental plans and collectively-bargained plans receive extended implementation timelines. This acknowledges the reality that government entities and union negotiations move more slowly than private sector changes.
Why Congress Made This Change
The primary motivation was revenue generation, plain and simple. Roth contributions provide immediate tax revenue to the federal government, while pre-tax contributions defer taxation for decades. The Joint Committee on Taxation estimated this provision would raise approximately $900 million over 10 years. In the context of federal budgets that's not a huge amount, but every revenue provision helps when Congress wants to fund other initiatives.
There's also a philosophical argument at play here. Policymakers argued that high earners, those most able to afford current taxation, shouldn't receive unlimited pre-tax deferral benefits. The mandate ensures wealthy Americans pay some taxes upfront rather than deferring indefinitely. Whether you agree with this philosophy or not, it's now the law of the land.
Retirement Planning Implications
This change requires some serious strategic reconsideration for affected workers. High earners lose the option to reduce current-year taxable income through pre-tax catch-ups. Making a $7,500 catch-up contribution as Roth (after-tax) means a higher current tax bill compared to the pre-tax option. For someone in the 35% federal tax bracket, that's an additional $2,625 in federal taxes, plus any state taxes.
The cash flow impact is real but it’s not just cash flow, it’s the tax savings that’s often most important right before retirement. In those often highest taxed years that additional amount to tuck away will be exposed to tax.
However, it's not all negative. Roth accounts offer genuine advantages. There are no required minimum distributions during the owner's lifetime, which provides continued tax-free growth. For estate planning, Roth accounts pass to heirs with their tax-free status intact. And if you expect to be in a higher tax bracket in retirement (whether due to personal circumstances or changes in tax law), paying taxes now at today's rates might actually be beneficial.
The strategic responses available depend on your individual situation. You might maximize catch-ups earlier, during ages 50 through 59, while the pre-tax option remains available. Consider Roth conversions of existing pre-tax balances during lower-income years. If you're married and one spouse earns below the threshold, that spouse's catch-ups can still be pre-tax. It's worth reviewing total retirement income projections under various scenarios to understand what works best for you.
Tertiary Implications
The per-employer nature of this rule creates interesting planning considerations. If you have multiple jobs, each employer is evaluated separately based on wages paid by that specific employer. This means there could be strategic value in how you structure your work. Taking one higher-paying position versus multiple lower-paying positions could affect whether the Roth mandate applies. Similarly, how you structure compensation through partnerships, LLCs, or corporate entities might create planning opportunities, though you should be careful not to let the tax tail wag the dog.
What to Expect Going Forward
The transition period of 2025 through 2026 will be busy for plan administrators. Plans must update to offer Roth catch-ups to all eligible participants. Payroll systems need programming changes for automatic Roth designation. Participant education campaigns should begin soon because this will confuse many people initially.
Starting January 1, 2027, full enforcement begins for most plans. The IRS will announce annual wage threshold adjustments, probably each October for the following year. Expect initial confusion and errors requiring those new correction procedures. Any significant change to retirement plans creates administrative headaches in the first year.
For participants, the action items are straightforward. If you fall into the higher-earning category then we need to plan for the inability to shelter that additional income. In 401(k) plans, you’ll need to make explicit elections with your plan rather than assuming the default is what you want. Effectively this change takes a small but helpful tool off the table.
If you’re an employer, you’ll have your own checklist and you’ll likely need to update plan documents by December 31, 2026, keeping in mind that extended deadlines exist for some plan types. My guess is that the plan sponsors won’t stop bugging you until it gets done but still important to expect it coming.
Long-Term Considerations
This represents a philosophical shift in retirement policy, moving away from unlimited tax deferral for high earners toward more immediate taxation. We may see further limitations on pre-tax savings opportunities for wealthy Americans as policymakers seek revenue while maintaining retirement incentives. The appetite in Congress for these kinds of provisions suggests this won't be the last change of this nature.
The $145,000 threshold will increase with inflation, but bracket creep means more participants will be affected over time. What seems like a "high earner" provision today will likely affect middle-income workers in 20 years. This is the same phenomenon we've seen with the Alternative Minimum Tax, which was originally designed for the very wealthy but eventually caught millions of middle-class taxpayers before being reformed.
Additionally, this adds genuine complexity to retirement planning models. The traditional assumption that catch-up contributions could be pre-tax no longer holds for most clients. Tax projection software and retirement calculators need updating to reflect this bifurcated treatment. Advisors will need to track each client's wages to predict when they'll be subject to this requirement, which adds another data point to monitor annually.
TL;DR
The mandatory Roth catch-up requirement represents a significant change to retirement savings rules for Americans earning above $145,000. While it eliminates planning flexibility, it's not necessarily disadvantageous depending on your personal situation. Roth accounts offer valuable tax diversification and estate planning benefits that some people undervalue.
The key is understanding how the rules apply to your specific situation and adjusting your retirement strategy accordingly. With proper planning, you can still maximize retirement savings while navigating these new requirements. Some people will benefit from the forced Roth treatment, particularly those who expect higher tax rates in retirement or who have estate planning goals. Others will find it constraining and may need to adjust their savings approach.
Start by reviewing your compensation structure and understanding which wages count toward the threshold. Model the tax impact of Roth versus pre-tax contributions in your specific situation. The transition period provides time to adjust, but 2027 will arrive faster than you think. Those who plan proactively, working with a qualified financial advisor or tax professional, will navigate these changes most successfully. Those who ignore the changes until January 2027 may find themselves with unexpected tax bills but still, it’s better to have the catch-up in Roth than nothing at all.
