The SECURE 2.0 Act, enacted in 2022, introduced significant changes to retirement savings plans. One of the pivotal changes that will take effect in 2026 is the requirement for high earners to make catch-up contributions on a Roth basis. This legislation aims to enhance retirement savings options while also addressing tax revenue concerns. For nearly a quarter-century, employees aged 50 and older have been able to make additional catch-up contributions to their retirement plans.1 Now, thanks to SECURE 2.0, this opportunity has been extended and adjusted to include "super catch-ups" for those aged 60 to 63.
The new Roth catch-up contribution rules specifically target high-earning employees. Those earning more than $145,000 annually will be required to make their catch-up contributions on a Roth basis, meaning these contributions will be made with after-tax dollars. This change is designed to help the federal government increase tax revenue by limiting the number of pre-tax contributions that high earners can make.
To determine whether an employee meets the $145,000 earnings threshold, employers will use the Federal Insurance Contributions Act (FICA) wages listed in box 3 of the employee's W-2 form from the previous year. Therefore, for compliance starting in 2026, employers will reference 2025 W-2 forms. Importantly, this rule does not apply to those without prior-year W-2 wages, such as the self-employed.
The SECURE 2.0 Act has also adjusted the contribution limits for different age groups. In 2025, the standard plan contribution limit will be $23,500. Participants aged 50 to 59 and those 64 and older will be able to make additional catch-up contributions of $7,500. However, participants aged 60 to 63 will be eligible for "super catch-ups," allowing them to contribute an additional $11,250. This tiered structure aims to provide more tailored opportunities for retirement savings as employees approach different stages of their careers.
The IRS has issued final regulations regarding the new Roth catch-up requirements, which will generally apply to contributions in taxable years beginning after December 31, 2026. However, employers can begin implementing these provisions earlier, using a "reasonable, good faith interpretation" of the statutory requirements. This flexibility allows employers to adjust their systems and plan documentation in advance of the mandatory changes.
Employers and employees should be mindful of the following key dates:
Employers will need to make several adjustments to comply with the new Roth catch-up contribution rules. First and foremost, they must ensure that their retirement plans offer a Roth option. Plans that do not currently offer Roth contributions will need to add this feature or restrict high earners from making catch-up contributions altogether.
Additionally, employers will need to update their payroll systems to accurately track and report Roth catch-up contributions. This may involve coordinating with plan administrators and payroll providers to ensure seamless implementation. Employers should also communicate these changes to employees well in advance to allow for adequate planning and adjustment.
Roth contributions offer several potential benefits compared to pre-tax contributions. While pre-tax contributions reduce the portion of an employee's paycheck that is subject to current income taxes, Roth contributions allow for potentially tax-free withdrawals in retirement. Specifically, Roth contributions can provide a tax-free nest egg if withdrawals are made after the account holder reaches age 59½ and the account has been held for at least five years.
For high earners, Roth contributions can be particularly advantageous as they provide tax diversification. Having both pre-tax and Roth accounts allows for more flexibility in managing taxable income during retirement. Additionally, Roth contributions are not subject to required minimum distributions (RMDs) during the account holder's lifetime, offering further tax planning benefits.
High earners affected by the new Roth catch-up rules should review their tax planning and retirement savings strategies in advance of the 2026 implementation. While the shift to Roth catch-up contributions may result in higher current income taxes, the long-term benefits of tax-free growth and withdrawals can be substantial.
One strategy is to maximize pre-tax contributions up to the plan limits and then allocate catch-up contributions to Roth accounts. This approach balances the immediate tax benefits of pre-tax contributions with the future tax advantages of Roth accounts. Additionally, high earners may want to consult with financial advisors to explore other tax-efficient investment options and strategies.
Employees should start preparing for the upcoming changes by reviewing their current retirement savings plans and understanding the new contribution limits and requirements. Those nearing the age of 50 should plan to take full advantage of catch-up contributions, while those approaching ages 60 to 63 should be aware of the "super catch-up" opportunities.
It is also essential for employees to stay informed about their employer's implementation plans and any changes to the retirement plan offerings. Regularly reviewing financial goals and strategies with a financial advisor can help ensure that employees are making the most of the new Roth catch-up contributions and optimizing their retirement savings.
In conclusion, the SECURE 2.0 Act introduces significant changes to retirement savings plans, particularly for high earners. By understanding the new Roth catch-up contribution rules and preparing accordingly, both employers and employees can navigate these changes effectively and optimize their retirement savings strategies.
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