IRS Sets Implementation Date for Changes to 401(k) Catch-Up Contributions by Joanie B. Stein, CPA
Posted on September 30, 2025
by
Joanie Stein
The IRS and Department of the Treasury recently issued final regulations concerning a 2022 law that requires certain high-income taxpayers’ 401(k) and 403(b) plan catch-up contributions to be designated as after-tax Roth contributions, beginning in tax year 2027. Employers may implement the Roth catch-up rules in 2026, provided they use a “reasonable, good faith interpretation of statutory provisions.”
Background
For more than two decades, individuals aged 50 and older have had the opportunity to supercharge their retirement savings by contributing additional pre-tax dollars to their employer-sponsored retirement savings plans above the statutory threshold and receiving a corresponding tax deduction that reduced their adjusted gross income in the years of funding.
For example, in 2025, workers of all ages can defer up to $23,500 of their salary into a 401(k) and deduct that amount from their taxable income. Individuals aged 50 and older can contribute an additional $7,500 in catch-up contributions, while those aged 60 through 63 can make super-charged catch-up contributions of up to $11,250. All contributions grow tax-deferred until savers take withdrawals in retirement, when they must pay taxes on those amounts at their ordinary income tax rates. When savers reach age 73, they must begin taking annual required minimum distributions (RMDs) from their accounts and paying the related income tax liabilities.
By contrast, contributions to Roth 401(k)s are made with after-tax dollars that grow tax-free and can be withdrawn free of tax when account owners reach age 59½.
SECURE Act Changes to Catch-Up Contributions
Under final guidance concerning the SECURE Act 2.0, workers who earn more than $145,000 (indexed for inflation) from their employer for taxable years beginning after Dec. 31, 2025, must treat their 401(k) and 403(b) catch-up contributions as after-tax Roth contributions beginning in taxable years after Dec. 31, 2026. This means that higher-income savers will lose a valuable tax deduction in 2027 and the ability to reduce their taxable income in the years they increase their retirement plan savings. On the other hand, their withdrawals after age 59½ will be tax-free, and they will not be subject to RMD requirements when they reach age 73. The actual benefits of these changes depend on each saver’s unique circumstances.
For example, workers in their 50s or 60s, who may be at the height of their earnings potential, will lose a tax deduction for their 401(k) catch-up contributions and the ability to reduce their taxable income for tax years beginning in 2027. Moreover, a higher taxable income may affect the taxpayers’ eligibility for other deductions, including those for state and local tax payments, charitable donations and qualified business income (QBI). On the other hand, the ability to escape RMDs and taxes on withdrawals in the future via Roth contributions today could be especially appealing to those individuals who expect to remain in a high tax bracket in retirement and have significant assets to pass on to future generations. Under all circumstances, these issues and opportunities should be addressed under the guidance of experienced tax advisors and CPAs.
About the Author: Joanie B. Stein, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she works with individuals and closely held businesses to implement sound strategies intended to preserve wealth and improve tax efficiency. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or at info@bpbcpa.com.
← Previous
