In 2022, President Biden signed the SECURE 2.0 Act into law which implemented numerous provisions aimed at improving Americans’ financial readiness for retirement. Provisions included ways to help younger people save more for retirement while paying off student debt, increasing the age at which retirees must begin Required Minimum Distributions (RMD) and creating a new “super” catch-up contribution to workplace retirement accounts for those age 60-63. But it also changed the nature of the standard catch-up contribution (for which participants age 50 and older become eligible), which is the subject of this brief update.
The IRS and U.S. Treasury Department recently finalized regulations which mandate that, beginning in 2026, all catch-up contributions to a workplace plan for those age 50 or older who earned more than $145,000 in FICA wages in the prior calendar year must be made to a Roth account in after-tax dollars. FICA wages are the portion of earnings that fund the Social Security programs and show up in Box 3 of Form W-2. It’s important to clarify that this change is only effective for workplace retirement plans such as 401(k)s and 403(b)s, not catch-up contributions to IRAs.
Individuals earning $145,000 or less in the prior year (adjusted for inflation in future years) will be exempt from the Roth requirement (although they could still elect to make their catch-up contribution to a Roth account). Additionally, the standard contribution amount (up to $23,500 for 2025) can still be funded with pretax dollars regardless of prior year income.
Pretax workplace retirement plan contributions reduce taxes on income at your highest marginal tax bracket. Therefore, the elimination of the ability to make pretax catch-up contributions will increase taxes for those impacted at their highest marginal rate:
- The catch-up contribution limit for 2025 is $7,500 (2026 limits have not yet been announced), meaning someone in the highest tax bracket who maximizes the catch-up amount could see their tax liability increase by over $2,700 as a result of this change.
- For those age 60-63 who maximize the “super” catch-up contribution, which allows an additional deferral of up to $3,750 (for a total of $11,250), could see their tax liability increase by about $4,100.
In anticipation of this change, we suggest contacting your tax advisor to see if any changes should be made to withholdings or allowances to avoid any surprises when you file your 2026 tax returns.
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The information contained in this document does not cover all tax strategies that may apply, is not a complete guide to tax planning, and does not constitute the rendering of legal, accounting, or other professional advice or opinions on specific facts or matters. Before implementing any ideas suggested here, consult with your tax advisor regarding your specific tax situation.
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