IRS finalizes Roth catch-up rule, raising stakes for planning

The IRS and the Treasury have issued final regulations on key provisions of the SECURE 2.0 Act, including the new Roth catch-up contribution mandate for higher-income retirement plan participants. This update is particularly timely for tax professionals as they anticipate navigating the 2026 tax season, providing an important opportunity to enhance client planning and ensure compliance.

What’s changing with Roth catch-up contributions?

Generally effective for taxable years beginning after Dec. 31, 2026, the new rule mandates that catch-up contributions to §401(k), §403(b) and governmental §457(b) plans must be made as Roth contributions for participants earning over a certain threshold. For 2025, this threshold is set at $145,000 in FICA wages (Social Security wages). This change requires higher-income participants to make catch-up contributions as after-tax Roth amounts rather than pre-tax deferrals. (Note: SIMPLE IRAs and SEPs are not covered.)

Because the test uses prior-year FICA wages from the plan sponsor (Box 3 of Form W-2, Wage and Tax Statement), eligibility is based on those wages; if a participant had no such wages with that employer in the prior year, the Roth catch-up requirement doesn’t apply for that year (§3121(a)).

This rule impacts individuals aged 50 or older, who can typically make catch-up contributions to retirement plans in addition to regular contribution limits. Under the new regulations, those with wages above the threshold will need to make their catch-up contributions as after-tax Roth contributions, not pre-tax contributions.

The final regulation’s impact on tax professionals

Retirement planning now comes with added compliance responsibilities, as tax professionals must guide clients through new filing rules and ensure contributions are classified correctly. The shift to Roth contributions means higher-income clients may need to rethink their retirement savings strategy, particularly if they were previously relying on pre-tax contributions.

The Roth catch-up rule also impacts the total allowable contributions for certain clients, especially those in the 60-63 age range, who will see an increased catch-up contribution limit of $11,250 for non-SIMPLE plans. For SIMPLE plans, the higher catch-up limit for ages 60-63 is $5,250 for 2025. Tax professionals should be ready to explain these changes to clients and help them adjust their retirement savings plans accordingly.

Advise clients whose prior-year FICA wages with the plan sponsor exceed the threshold that catch-up contributions must be Roth (after tax), meaning no current-year pre-tax deduction and a shift toward tax-free retirement growth.

Explaining the Roth shift to clients

Imagine a client named Jane, who is 58 and earns $150,000 annually. Jane is already contributing the maximum to her 401(k), and she’s also eligible to make catch-up contributions. Under prior rules, Jane could contribute an additional amount on a pre-tax basis. Under the new rules, because her income exceeds the $145,000 threshold, her catch-up contribution must be made as a Roth contribution.

The $145,000 threshold is indexed for inflation in $5,000 increments, but for 2025, it remains at $145,000.

As her tax professional, you’ll need to explain that this will result in a different tax treatment for Jane’s catch-up contributions. The money will be taxed upfront, but it will grow tax-free in her retirement account. This is a crucial point, especially when discussing retirement tax strategies and planning for future tax rates.

Additionally, Jane should be advised on how to adjust her tax planning to account for this shift. For example, you might suggest revisiting her overall tax strategy, considering the implications of making Roth contributions and ensuring she’s prepared for any additional tax liabilities in the short term.

How this applies in 2025 and beyond:

• In 2025, Jane may still make pre-tax catch-up contributions, even though her wages exceed $145,000, because of the administrative transition period.
• Starting in 2027, if the transition period ends as scheduled, Jane’s catch-up contributions must be made as Roth contributions, and she’ll pay tax on them in the year contributed.

Note: Transition relief runs through Dec. 31, 2025. The Roth catch-up requirement applies to taxable years beginning after Dec. 31, 2026, so 2027 is the first year the rule applies for calendar-year plans.

Navigating the plan administrative transition period

For now, as we approach the 2026 tax season, retirement plans may rely on a good-faith interpretation of SECURE 2.0. This means plans can continue to accept catch-up contributions and treat them under the old rules, provided they are making a reasonable effort to comply with the new statute and preparing for the transition. By the end of 2025, this flexibility ends and plans must prepare to fully implement the Roth catch-up contribution rule for 2027. As a tax professional, you can guide clients by confirming how their plan is applying the rule during this interim period and helping them prepare for required changes.

New Roth catch-up rule takeaways for tax pros

• Review your clients’ eligibility for catch-up contributions and determine if the Roth rule applies
• Advise clients on the shift to Roth contributions for those exceeding the $145,000 wage threshold
• Help clients in the 60-63 age range maximize their catch-up contributions, adjusting for the increased limit
• Stay ahead of the compliance deadline by preparing clients for changes in plan documentation and tax reporting

This change isn’t just about keeping clients compliant; it’s an opportunity to provide value by guiding them through a crucial aspect of their financial planning. For tax professionals, staying updated on the latest SECURE 2.0 provisions will be key to offering timely, relevant advice in 2025 and beyond.

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