Secure 2.0: Roth Catch-Up Contributions for 403b and 401k Plans

Q: Who Is Affected by the Roth Catch-Up Requirement?

The Roth catch-up requirement applies to employees who: - Participate in 403b or 401k plans. - Are aged 50 or older. - Earn more than $145,000 per year (adjusted annually). - Make catch-up contributions beyond the standard limit. For example, a 52-year-old employee earning $150,000 who contributes the maximum $24,500 plus $8,000 catch-up to their 401k must make the $8,000 catch-up contribution as Roth starting in 2026. Employees earning less than the threshold can still make catch-up contributions as pre-tax or Roth, depending on their plan.

4 days ago
3 min read

Saving enough for retirement is a challenge many face, especially as they approach their later working years. The Secure 2.0 Act introduces important changes to retirement savings rules, specifically requiring catch-up contributions in 403b and 401k plans to be made as Roth contributions. This shift affects how higher earners and older employees save for retirement, with implications for taxes and future withdrawals. This article explains what this requirement means, who it impacts, and how to plan accordingly.

Eye-level view of a financial advisor explaining retirement plan documents to a client

What Are Catch-Up Contributions?

Catch-up contributions allow employees aged 50 and older to save extra money beyond the standard annual limits in their retirement plans. This feature helps those closer to retirement boost their savings when time is running short. For example, in 2026, the standard 401k contribution limit is $24,500, but employees aged 50 or older can contribute an additional $8,000 as catch-up contributions, totaling $32,500. Those aged 60 to 63 can contribute an additional $11,500 in catch up contributions, totaling $36,000.

Catch-up contributions have traditionally been allowed as either pre-tax or Roth contributions, depending on the plan rules and employee choice. Pre-tax contributions reduce taxable income now, while Roth contributions are made with after-tax dollars but grow tax-free.

What Secure 2.0 Changes About Catch-Up Contributions

The Secure 2.0 Act, passed in late 2022, includes a new rule that catch-up contributions for 403b and 401k plans must be made as Roth contributions starting in 2026 for employees earning above $145,000 annually (indexed for inflation). This means:

Employees who qualify must make their catch-up contributions with after-tax dollars.
The catch-up contributions will grow tax-free and qualified withdrawals will be tax-free.
The standard contributions can still be made as pre-tax or Roth, depending on the plan and employee choice.
This rule applies only to catch-up contributions, not the entire contribution amount.

This change aims to increase tax revenue in the short term by collecting taxes on catch-up contributions now, while encouraging tax-free growth and withdrawals later.

Who Is Affected by the Roth Catch-Up Requirement?

The Roth catch-up requirement applies to employees who:

Participate in 403b or 401k plans.
Are aged 50 or older.
Earn more than $145,000 per year (adjusted annually).
Make catch-up contributions beyond the standard limit.

For example, a 52-year-old employee earning $150,000 who contributes the maximum $24,500 plus $8,000 catch-up to their 401k must make the $8,000 catch-up contribution as Roth starting in 2026.

Employees earning less than the threshold can still make catch-up contributions as pre-tax or Roth, depending on their plan.

Why Does This Change Matter?

This requirement impacts retirement savers in several ways:

Tax Timing: Catch-up contributions are taxed upfront as Roth contributions, unlike pre-tax catch-up contributions that reduce taxable income now but are taxed on withdrawal.
Tax Diversification: Using Roth catch-up contributions can provide tax diversification in retirement, offering tax-free income streams.
Planning Complexity: Employees and employers must understand the new rules to avoid mistakes in contribution types.
Potential Increased Tax Bill: Higher earners may face a larger tax bill in the contribution year due to Roth catch-up contributions.

Practical Examples

Example 1: High Earner Using Roth Catch-Up

Jane is 55 and earns $160,000 annually. She contributes $24,500 to her 401k and wants to add the $8,000 catch-up contribution. Under Secure 2.0, Jane must make the $8,000 catch-up contribution as Roth. She pays taxes on this amount now but enjoys tax-free growth and withdrawals on it later.

Example 2: Lower Earner with Flexible Catch-Up Options

Mark is 52 and earns $120,000. He contributes $24,500 plus $8,000 catch-up to his 403b plan. Since Mark earns below the threshold, he can choose to make catch-up contributions as pre-tax or Roth, depending on his preference and plan rules.

How Employers and Employees Should Prepare

Employers managing 403b and 401k plans should:

Update payroll and plan systems to track Roth catch-up contributions separately.
Communicate changes clearly to employees, especially those near or above the income threshold.
Provide education on tax implications and contribution options.

Employees should:

Review their income and contribution limits annually.
Understand the tax impact of Roth catch-up contributions.
Consult financial advisors to adjust retirement strategies accordingly.

Key Takeaways

The Secure 2.0 Act’s requirement that catch-up contributions be made as Roth contributions for higher earners in 403b and 401k plans changes how late-career employees save for retirement. This rule affects tax timing and retirement income planning. Understanding this change helps employees make informed decisions and avoid surprises at tax time.