The IRS and U.S. Department of the Treasury have recently finalized rules related to the Secure 2.0 Act of 2022, particularly regarding catch-up contributions for retirement plans such as 401(k)s. These rules primarily impact workers aged 50 and older, introducing significant changes that could affect their retirement savings strategies.
Beginning in 2027, catch-up contributions for these workers will generally need to be made on an after-tax basis, commonly referred to as Roth contributions, for those whose earnings from their current employer exceeded $145,000 in the previous year. However, the IRS has indicated that some plans may be able to implement this shift as early as 2026, provided they make a “reasonable, good faith interpretation” of the statutory provisions.
In the interim, workers still have the option to choose between pretax and Roth contributions for their retirement catch-ups, provided their workplace plans offer both options and their financial situation allows. These choices are crucial and warrant careful consideration, as they can affect long-term financial outcomes. Experts emphasize the importance of evaluating one’s overall financial situation, particularly because a higher adjusted gross income (AGI) could limit eligibility for various deductions.
Certified financial planner Patrick Huey advocates for individuals to collaborate with their advisors or tax preparers to conduct multi-year tax projections during this transitional phase. Such analysis can help determine whether it may be more beneficial to accelerate pretax catch-up contributions before the 2026 deadline or to start transitioning to Roth contributions sooner.
For the year 2025, workers are permitted to defer up to $23,500 into their 401(k) plans, with those aged 50 and older allowed to add an additional $7,500 in catch-up contributions. Additionally, a “super catch-up” contribution will be available for employees aged 60 to 63, raising the catch-up limit to $11,250. Despite the prevalence of catch-up contributions—available in nearly all retirement plans by 2024—a 2025 report from Vanguard revealed that only 16% of eligible workers actually made these contributions. Notably, most of the individuals who did utilize catch-up contributions had annual earnings of $150,000 or more.
As the deadline for changes approaches, the financial advisory community is urging investors to remain proactive. Certified financial planner Jared Gagne stresses that individuals should “not sit on the sidelines” as the landscape evolves, implying that engaging with financial professionals for guidance and strategies will be essential to making the most of upcoming retirement savings opportunities.
