New Mandatory Roth Catch-Up Contributions for High-Income Earners
New Mandatory Roth Catch-Up Contributions for High-Income Earners
Attention participants of employer-sponsored 401(k), 403(b), or 457(b) retirement plans who earn more than $144,999, and will be age 50 or older in 2026. The Internal Revenue Service (IRS) recent finalization of regulations regarding Roth catch-up contributions will likely affect your plan contributions. Although the final rule is technically not effective until January 1, 2027, the government expects compliance under a reasonable, good faith interpretation.
On September 15, 2025, the IRS published the final regulation establishing a significant change mandated in the SECURE 2.0 Act of 2022. The Roth catch-up rule was originally slated to go into effect for plans after December 31, 2023, but the first two years (2024 and 2025) were deemed administrative transition years, which has not been extended with the final rule. Therefore, as of January 1, 2026, catch-up contributions for employees earning $145,000 or more (indexed for inflation) in the previous year are expected to be made as Roth (after-tax) contributions.
Previously, participants age 50 and over could make catch-up contributions either as pre-tax or Roth, whichever was their preference. The new requirement eliminates this choice for higher-income participants, mandating after-tax treatment of catch-up contributions. Participants with high incomes who are accustomed to contributing to their retirement accounts on a pre-tax basis through catch-up contributions will soon experience a significant shift to their taxable income. To effectively manage this transition, it may be necessary to re-evaluate and adjust your cash flow planning strategies.
Tax Scenario
If you are wondering how this will look from a practical perspective, consider the following scenario. Roger is a 58-year-old participant in a 401(k) plan who earns $249,000 in 2025. He contributes the maximum allowed to his 401(k), which is $23,500. Additionally, he contributes to his family Health Savings Account (HSA). His employer contributes $2,600 to the HSA plan, allowing him to contribute an additional $6,950 for a total of $9,550, including the $1,000 catch-up. This brings his taxable income to $218,550. In 2025, he can make a pre-tax catch-up contribution of $7,500, thereby reducing his reported wages to $211,050. He and his spouse file married filing jointly, and they do not have any other income sources. With the standard deduction of $31,500, their taxable wages in 2025 are $179,550. They will pay $29,329 in Federal tax, compared to $30,979 if Roger made post-tax Roth contributions. The difference is more significant if both spouses are high-income earners.
Let's say Roger's wife, Bonnie, is 60 years old in 2025. She also earns $249,000 and makes the same contributions to both her 403(b) and HSA plans. The difference for her is the catch-up would be $11,250 because she is between the ages of 60 and 63, so her taxable wages are $214,250. Their combined gross wages in 2025 are $425,300 with all contributions made on a pre-tax basis. Their taxable income would be $393,800, and they would pay $81,784 in federal taxes. However, if Roger and Bonnie made catch-up contributions with after-tax dollars, their taxable income would be $412,550, and all the Roth contributions would be taxed at 32%, so their tax liability would be $87,888, resulting in an additional $6,104 owed to the IRS.
| Participant | Income | 2025 Standard Maximum Contribution | 2025 Catch-Up | HSA Contribution | Reported Wages (all pre-tax) | Reported Wages (Roth catch-up) |
| Roger (age 58) | $249,000 | $23,500 | $7,500 | $6,950 | $211,050 | $218,550 |
| Bonnie (age 60 | $249,000 | $23,500 | $11,250 | -- | $214,250 | $225,500 |
| Total Income | $425,300 | $444,050 | ||||
| Standard Deduction (MFJ) | $31,500 | $31,500 | ||||
| Taxable Income | $393,800 | $412,550 | ||||
| Total Tax | $81,784 | $87,888 |
Planning Steps
If you are a high-income earner, you can work with a financial planner to see if there are other ways to reduce your taxable income for 2026. Tax planning is just one of the many services included in the proprietary financial planning process Hurlow Wealth Management Group offers to their clients. For nearly two decades, the Hurlow Wealth Management Group’s team of CERTIFIED FINANCIAL PLANNERS™ based in Bloomington and Indianapolis, Indiana, have assisted high-income earners in 28 states find clarity, make decisions with confidence, and achieve comfort in retirement. Call 812-333-4726 or click here to schedule your complimentary introductory call with an advisor today.