Last year, the IRS finalized rules outlined in the SECURE 2.0 Act that change how some workers can make catch-up contributions to their employer retirement plans such as 401(k)s. While many plans are preparing for the change, plans must be fully compliant by Jan. 1, 2027.
Now is a good time to revisit your retirement strategy and assess if and how your contribution strategy will change. Here’s what to know about the new rule.
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What is changing in 2027?
Catch-up contributions allow anyone who is 50 or older to contribute extra money to their 401(k), 403(b), individual retirement account (IRA) and similar retirement plans than the typical contribution limits allowed. However, the new rule says that some high earners must put catch-up contributions in a Roth plan moving forward. That means you must pay taxes on those contributions now, but qualified withdrawals are tax-free in retirement.
The rule takes full effect in 2027 and applies to workers whose prior-year Federal Insurance Contributions Act (FICA) wages from that employer exceeded a certain threshold. SECURE 2.0 set that threshold at $145,000, with annual inflation adjustments beginning after 2025. For 2026, the IRS increased the threshold to $150,000.
Anyone who is 60 to 63 years old can make a “super” catch-up contribution. For tax year 2026, workers ages 60 to 63 can make catch-up contributions of up to $11,250, compared with the standard catch-up limit of $8,000. High earners must designate the super catch-up contributions as Roth contributions.
These changes do not impact your regular contributions. You can designate those as traditional or Roth, depending on your plan.
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Why planning matters
Plans have to be fully in compliance by the beginning of 2027, which means you may still have time to plan for it before the tax change becomes official, if this affects you. Since your contributions are not tax-deferred, you may end up with a higher tax bill. You can assess your prior-year FICA wages to assess if you will cross the threshold and be required to make catch-up contributions in a Roth account.
A raise, bonus or job change can impact who is required to contribute to a Roth plan. While you may end up with a higher tax bill now, being forced to put catch-up contributions in a Roth account can offer more tax diversification in retirement. You can then pull from a Roth retirement plan with tax-free qualified withdrawals for part of your living expenses instead of only leaning into a retirement plan where distributions are treated as ordinary income.
How high earners should adjust their retirement strategy
It’s better to prepare now than scramble at the end of the year. Be sure to review contribution elections before the start of 2027 and give yourself time to ask your HR department questions regarding your retirement plan if you don’t understand how the change will affect you. You can also ask them or the plan provider how your employer will implement the Roth catch-up requirement. Keep in mind that if they don’t offer a Roth option, you generally won’t be able to make catch-up contributions (unless the plan is amended).
You should also assess how your taxes will be different moving forward. High earners who are 50 years or older may need to budget for higher current-year taxes. If you intend to max out catch-up contributions, more of your retirement contributions will be taxed today instead of when you withdraw them in retirement.
Roth contributions aren’t automatically better or worse. It depends on your financial situation, but you must pay closer attention to how your earnings are taxed.
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