Starting in 2026, if a taxpayer has income of at least $145,000 for the prior year, any retirement account catch-up contribution they make must be treated as a Roth contribution — meaning it must be an after-tax contribution.
This framework is among more than 100 changes established by the landmark legislation known as the Secure 2.0 Act of 2022. This particular adjustment, however, was largely put in place to help fund the overall cost of the law, as it will likely trigger more people to pay taxes earlier even as they save a little extra for the future.
It’s a sensible framework, according to experts, but there’s one issue. Under proposed regulations issued last month by the Internal Revenue Service, it is now confirmed that employers will not need to take steps to establish a Roth savings option merely to ensure their higher-earning employees can make catch-up contributions.
That is, if there’s no Roth option in place, high earners will simply be shut out of catch-up contributions in their workplace retirement plan.
Obviously, this could be a big disruption for some workers starting next year, according to Robert Bloink and William H. Byrnes, the professors behind ThinkAdvisor’s Tax Facts.
As the duo discussed on a recent ThinkAdvisor webcast (now available on demand), Americans over the age of 50 can make fairly substantial catch-up contributions, and the limit is increased meaningfully for Americans between the ages of 60 and 63.
In practice, those making $145,000 or more are among the income cohorts that are likeliest to take advantage of catch-up contributions — not to mention the likeliest to need to save substantial amounts of money in workplace retirement accounts to maintain their standard of living during life after work. So, the professors agreed, it is somewhat concerning to think they could soon be unable to do so.
The good news is that Roth-style workplace retirement accounts have increased significantly in popularity and availability over the last decade. Plus, modern retirement plan recordkeeping technology has made establishing Roth accounts a fairly straightforward affair, and there’s also the fact that employers are likely to want to keep their higher-earning and longest-tenured employees happy.
So, while there is no guarantee under the law that higher-earning people will have the right to elect to make catch-up contributions at work, it’s likely that they will retain the ability to do so. To make sure their access isn't disrupted, though, financial advisors should start having conversations with their business-owning and C-suite executive clients about the heightened importance of Roth-style accounts.
“Adding a Roth component shouldn’t be as administratively difficult as it perhaps once was,” Bloink observed. “Yes, some smaller employers may avoid adding a Roth option due to the administrative burden, but by and large, I think we’re going to see even more employers offering Roth options due to this new mandate.”
Important Catch-Up Contribution Facts
As the professors discussed, the Secure 2.0 Act increased the catch-up contribution limits to $10,000 for taxpayers aged 60, 61, 62 or 63 for tax years beginning from 2025. The law will also adjust the $1,000 catch-up contribution to IRAs for inflation.
As noted, starting in 2026, all catch-up contributions will be treated as Roth contributions for employees that reach a certain income threshold. The threshold is set at $145,000 to begin with, but the amount will be indexed for inflation in future years.
Notably, under the aforementioned IRS proposed regulations, employers won’t be in violation of important rules known as the “universal availability requirements” simply by allowing participants between ages 60 and 63 to make the increased catch-up contributions. It sounds like a technical point, the professors noted, but it’s a key administrative consideration under the Employee Retirement Income Security Act.
Most importantly, according to the professors, is that the IRS also clarified that only FICA wages from the individual employer offering the retirement plan are counted in determining whether the employee is subject to the Roth catch-up requirement. Simply put, self-employment income is not counted. Similarly, if employees had no FICA wages from the employer in the prior year, they are not subject to the Roth catch-up requirement even if their wages in the current year exceed the threshold.
Moreover, the professors observed, the wage threshold is not prorated for an employee’s first year of employment. Thus, the employee’s FICA wages must have exceeded the full threshold for the prior year to become subject to the Roth catch-up requirement.
Finally, the applicable FICA wages must come from the individual’s common law employer. When multiple employers sponsor the plan, wages from one employer are not aggregated with the wages from another employer sponsoring the plan.
In practice, the professors agreed, this is a workable framework for employers and one that should ultimately be of significant benefit to the public.
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