A new federal rule set to take effect January 1, 2026, will require certain high-income workers to make catch-up contributions to their workplace retirement plans on an after-tax Roth basis, eliminating the pretax tax deduction for those amounts. The change, enacted under the Secure 2.0 Act of 2022, targets employees aged 50 or older who earned more than $145,000 in wages subject to Social Security taxes from the same employer in the prior calendar year. This threshold may adjust annually for inflation.
The rule applies to contributions in 401(k), 403(b), 457(b), Simplified Employee Pension plans and SIMPLE individual retirement accounts. Currently, eligible workers can contribute up to the standard limit—$23,500 in 2025—plus catch-up amounts of $7,500 for those 50 and older, or up to $11,250 for participants aged 60 to 63. These catch-up limits are indexed for inflation each year. Under existing rules, contributions can be made pretax, reducing current taxable income and allowing tax-deferred growth until withdrawal in retirement.
Starting in 2026, affected high earners must designate catch-up contributions as Roth, meaning they pay income taxes upfront on those amounts. The funds then grow tax-free, and qualified withdrawals after age 59 1/2 and a five-year holding period are also tax-free. If a plan does not offer a Roth option, which is the case for about 7% of plans according to a 2024 survey by the Plan Sponsor Council of America, eligible workers cannot make catch-up contributions at all.
The Internal Revenue Service finalized regulations on this provision September 15, 2025, confirming no further delays beyond a prior administrative transition period ending December 31, 2025. The regulations allow plan administrators to aggregate prior-year wages from certain related employers when determining eligibility and provide correction methods for noncompliance, such as transferring pretax catch-up amounts plus earnings to a participant’s Roth account if a Form W-2 has already been issued. For governmental plans or those under collective bargaining agreements, applicability may start later.
The change does not affect workers earning $145,000 or less in the prior year, who can continue making pretax catch-up contributions if their plan allows. For high earners, the shift means potentially paying taxes at current rates, which may be higher during peak earning years than in retirement. “You’ll owe more taxes to the federal government now because you lose pre-tax treatment (on those contributions),” said Brigen Winters, a principal at Groom Law Group, an employee benefits law firm that represents retirement plan sponsors, among others.
Additionally, “your take-home pay could be reduced,” said Angela Capek, a senior vice president at Fidelity Investments, one of the largest workplace retirement plan providers.
On the positive side, Roth contributions offer tax-free growth and withdrawals, and under Secure 2.0, Roth 401(k) accounts are exempt from required minimum distributions starting at age 73, unlike traditional accounts. This provides greater flexibility in managing taxable income in retirement, especially when combined with other sources like Social Security benefits, parts of which may be taxable.
Data from the Employee Benefit Research Institute indicates that in 2021, 20.6 percent of participants aged 50 or older earning more than $145,000 made contributions exceeding $19,000, suggesting a portion of this group regularly utilizes catch-up options and will feel the impact. A 2025 Vanguard report, analyzing over 1,400 plans and nearly 5 million participants, found that only 16 percent of eligible workers made catch-up contributions in 2024, with most participants in that group earning $150,000 or more.
The Secure 2.0 Act, signed into law December 29, 2022, as part of a larger omnibus spending bill, aims to enhance retirement security through more than 90 provisions. Beyond the Roth catch-up mandate, it introduced the super catch-up limit for ages 60 to 63, effective January 1, 2025, allowing contributions up to the greater of $10,000 or 150 percent of the standard catch-up amount, indexed for inflation. In 2025, this means $11,250 for 401(k), 403(b) and 457(b) plans, or $5,250 for SIMPLE plans. Other changes include raising the required minimum distribution age to 73 in 2023 and 75 in 2033, and allowing emergency withdrawals up to $1,000 without penalty.
For Southern Maryland residents, where industries like defense contracting and government employment often yield higher salaries, the rule may affect a notable segment of the workforce. Average household incomes in counties such as Calvert, Charles and St. Mary’s hover around $100,000 to $120,000 based on recent Census data, but many in federal or contractor roles exceed the $145,000 threshold. Local financial advisors recommend reviewing plan options now, as 95 percent of Fidelity-managed plans and 86 percent of Vanguard plans offer Roth features, up from prior years.
To prepare, workers should confirm if their plan includes Roth options and consider maximizing pretax catch-ups through 2025 to lock in current tax benefits. Consulting a tax professional for multi-year projections is advised, weighing factors like expected retirement tax brackets and estate planning. If a plan lacks Roth, sponsors may need to amend by 2026 to allow catch-ups, or employees could explore alternatives like nonqualified deferred compensation plans for additional tax-deferred savings. The IRS regulations emphasize a good-faith implementation standard for early adopters.
This provision reflects broader efforts to balance revenue needs with retirement incentives, ensuring higher earners contribute after-tax while preserving access for others. As retirement planning evolves, understanding these mechanics helps secure financial stability, particularly in regions like Southern Maryland with strong ties to federal employment and steady economic growth.
