The Treasury Department and IRS issued final regulations on September 15, 2025 implementing a SECURE 2.0 Act provision that has been in limbo since it was first enacted in 2022. Under the rule, 401(k), 403(b) and governmental 457(b) participants age 50 or older whose prior-year wages from their plan's sponsoring employer exceeded an inflation-adjusted threshold — $150,000 for wages earned in 2025 — must make all of their catch-up contributions as after-tax Roth money rather than pretax money, starting with contributions made in 2026.
What changed
SECURE 2.0 originally called for this Roth catch-up mandate to begin in 2024, but the IRS granted a two-year administrative transition period to give plan sponsors time to update payroll and recordkeeping systems, most recently confirmed in Notice 2023-62. That transition relief runs through the end of 2025, so the September 15 final regulations lock in 2026 as the first year plans must generally apply the rule, while allowing continued good-faith compliance efforts into 2026 as recordkeepers finish system changes. The regulations also clarify related SECURE 2.0 mechanics, including how employers with related companies may aggregate wages and how plans may correct administrative errors in applying the rule.
Who is affected
The threshold looks backward at a single employer's wages, not household income or total compensation across jobs. A participant's status for 2026 catch-up contributions depends on Social Security (FICA) wages paid by the same employer sponsoring the plan during 2025; the relevant amount is $150,000, reflecting an inflation adjustment from the $145,000 figure written into the statute. That backward-looking, single-employer design means a worker who earned a large bonus or commission in 2025 but changes jobs or has a lower-paying 2026 can still be locked into Roth-only catch-up treatment for the entire 2026 plan year at the new employer, while someone who crosses $150,000 for the first time only in 2026 is unaffected until 2027. The rule affects only the catch-up portion of contributions — amounts above the standard $24,500 base deferral limit for 2026 — not ordinary elective deferrals.
The after-tax math
Example: a 61-year-old executive earned $180,000 in wages from her employer in 2025, comfortably above the $150,000 threshold, and plans to contribute the maximum allowed in 2026. Because she is between ages 60 and 63, her catch-up limit is the enhanced $11,250 rather than the standard $8,000. Under the old rules she could have contributed that $11,250 pretax, saving roughly $4,163 in current-year federal tax at a 37% marginal rate. Under the new mandate, that same $11,250 must go in as Roth: she gets no current deduction, pays the $4,163 in tax now, but the contribution and all future growth come out tax-free in retirement, including through any required distributions on the Roth portion.
| Item | Pretax catch-up (pre-2026) | Mandatory Roth catch-up (2026+) |
|---|---|---|
| Contribution | $11,250 | $11,250 |
| Current-year tax savings at 37% | About $4,163 | $0 |
| Tax on qualified withdrawal in retirement | Ordinary income tax due | Tax-free |
What to watch
Households near the $150,000 threshold should track their W-2 wages from their specific employer each year, since a single bonus, commission spike or stock-based compensation event can push a worker over the line for the following year's catch-up contributions. Plan sponsors that have not yet updated payroll systems to automatically split catch-up contributions into Roth treatment for affected employees face a compressed timeline before full compliance is expected. Workers who already max out pretax deferrals and now face mandatory Roth catch-up dollars may also want to revisit how much of their broader savings sits in pretax versus Roth accounts, since the mix affects future required minimum distributions and the taxation of Social Security benefits in retirement.
Sources
- First reported Treasury, IRS issue final regulations on new Roth catch-up rule, other SECURE 2.0 Act provisions (IR-2025-91) — IRS
- Catch-Up Contributions — Federal Register
- IRS Final Regulations on Catch-up Contributions — McGuireWoods
- IRS Issues Final Regulations on Catch-Up Rule Changes — Groom Law Group
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
