Mandatory Roth IRA Catch-Up Contributions to Commence from IRS as of Designated Start Date
The Secure Act 2.0, passed a few years ago, is set to bring significant changes to retirement savings for high earners in the United States. One of the key changes is the introduction of the "super catch-up" provision, which affects those aged 50 and older.
Beginning with the 2025 tax year, individuals can contribute up to $30,500 to their 401(k) accounts, with a catch-up contribution of $7,500 made in a Roth IRA. This provision is confirmed by the Internal Revenue Service (IRS).
However, the Roth IRA catch-up rule technically kicks in from January 1, 2026. Employers, though, have an extended grace period until 2027 to ensure their plans comply with the new rules. This grace period is designed to reduce administrative burdens and give participants and employers more time to correct errors.
It's important to note that the full applicability of the Roth IRA catch-up rule will generally take effect for most plans beginning after December 31, 2026.
The SECURE 2.0 Act requires certain higher earners to make catch-up contributions to their employer-sponsored 401(k) accounts on a Roth basis. Contributions made under this rule will be made with after-tax dollars instead of pre-tax.
The IRS final rules provide clarification on various questions related to the Roth IRA catch-up contributions. For instance, if a catch-up contribution is mistakenly made as a pre-tax contribution instead of a Roth, plans have until the end of the following plan year to correct it.
Workers age 60 to 63 can contribute significantly more above the standard catch-up limits - up to $11,250 in 2025. However, this increased catch-up limit is not exclusive to the Roth contribution.
Employers and plan sponsors are expected to prepare for the change by updating their systems and providing education to help participants understand the new rules.
It's worth mentioning that the Roth IRA catch-up rule does not apply to taxpayers making $144,999 or less in a tax year. For those earning $145,000 or more, they can make catch-up contributions to their employer-sponsored 401(k) account on a Roth basis.
A notable aspect is that you will not be able to get tax deductions on those Roth IRA catch-up contributions as you would with typical 401(k) contributions. However, you can withdraw the money tax-free when you retire.
Over 200 entities, including Fortune 500 companies, firms, and public employers, had initially asked Congress for a two-year delay to the Roth IRA catch-up rule. However, the IRS final catch-up regulations do not technically start on January 1, 2026, but most plans will begin complying with the new rules by then.
For employers that are part of a controlled or affiliated service group, they can combine wages from related companies to determine if an employee's income exceeds the $145,000 threshold.
In the contribution year starting from 2026, high earners will only be allowed to make Roth-only catch-up contributions. This means that pre-tax catch-up contributions will no longer be an option for these individuals.
In summary, the Secure Act 2.0 is introducing significant changes to retirement savings for high earners in the United States, particularly with the introduction of the "super catch-up" provision and the Roth IRA catch-up rule. It's essential for employers and employees to familiarise themselves with these changes and prepare accordingly.
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