Workers who exceed a certain wage threshold must make retirement plan catch-up contributions to an after-tax Roth account.
For many workers, the later stage of a career is a time of professional accomplishment. These peak earning years, which may coincide with having fewer dependents, can also be a time when it becomes easier to boost contributions to a workplace retirement saving plan.
Since 2002, tax law has supported late-career saving through catch-up contributions, but a significant change to the rules now alters the tax advantages of catch-up contributions for high earners.
Workers who exceed a certain wage threshold in the previous year can no longer make catch-up contributions to a pre-tax plan such as a 401(k) – they must make them to a Roth account using after-tax dollars.
Under IRS Notice 2025-67, the threshold for making Roth catch-up contributions in 2026 is $150,000 in Federal Insurance Contributions Act (FICA) wages, as reported in 2025 tax documents. FICA wages are the amount in W-2 Box 3 that represents an employee’s gross earnings subject to FICA taxes, which fund Social Security and Medicare.
The change will affect a meaningful number of people, not just those whose accumulated wealth, which makes it less necessary to try to save more in the final years before retirement.
Catch-up contributions acknowledge the need for many workers to accelerate their saving efforts as they get closer to retirement. The opportunity is especially valuable for those who started saving later or had career gaps, as well as the increasing number of workers who no longer have access to the company pensions plans that helped sustain previous generations.
Contributions to employer-sponsored plans are double tax-advantaged: Contributions are made with pre-tax dollars, which reduces the worker’s taxable income, and growth in the account is tax-deferred. Taxes are not paid until distributions are taken, typically in retirement when the account owner’s income level and tax rate are potentially lower than during working years, especially peak earning years.
Each year, there is a limit on the amount each worker can contribute to an employer-sponsored retirement plan. Catch-up contributions allow those 50 and older to contribute an additional amount. In 2025, super catch-up contributions went into effect for those ages 60 to 63, allowing for an even higher catch-up amount.
For 2026, the 401(k)-employee contribution limit is $24,500. For workers 50 and older, a catch-up contribution of an additional $8,000 can be made, boosting the total contribution to $32,500. Those eligible to make super catch-up contributions can add another $3,250 for a total annual contribution of $35,750, which is $11,250 more than those under 50.
There are several types of employer-sponsored plans, including 401(k), 403(b), 457(b) and SIMPLE IRA accounts. Each typically has a distinct catch-up contribution limit. Contribution limits, catch-up limits and the newly introduced high-earner FICA threshold are indexed for inflation, so they can increase year to year.
The SECURE 2.0 Act, passed in 2022, disallows the pre-tax advantage of catch-up contributions for high earners. This eliminates the near-term tax benefit of reducing annual income.
Comparatively, funds in a Roth account grow tax-free and qualified distributions are tax-free. Because the account owner has already paid income tax on contributions, those funds can always be withdrawn tax-free. For earnings, or growth, to qualify for tax-free distributions, the account owner must be at least 59 1/2 and five years must pass since the initial contribution to the account.
The differing tax treatments between pre-tax, tax-deferred and tax-free accounts can accommodate more complex tax-planning withdrawal strategies in retirement. In many cases, it can be advantageous to have more than one type of account.
Worker eligibility is based on the FICA wages provided by employers on W2 forms, not total household income. Therefore, much of the responsibility for adapting rests with employers, many of which had to update payroll systems to track prior year wages and properly route catch-up contributions.
Originally scheduled to take effect in 2024, the Roth-only mandate was delayed to 2026 because of readiness concerns. Employers have a good-faith compliance year in 2026 before strict enforcement begins in 2027.
An employee who is hired mid-year and whose compensation level puts them over the threshold is not required to make catch-up contributions to the Roth until the following year.
If an employer’s plan does not include a Roth option, high earners are prohibited from making catch-up contributions until the employer adds one.
High earners whose prior-year FICA wages exceed the applicable threshold must make catch-up contributions on a Roth basis.
Participants whose prior-year FICA wages do not exceed the applicable threshold may continue to make catch-up contributions on either a pre-tax or Roth basis, if permitted by the plan.
Individuals who do not make catch-up contributions do not need to take any action.
Changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors we are not qualified to render advice on tax or legal matters. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
