If you’re a high-earning worker over 50, changes are coming to how you can save for retirement and the tax impact could be significant.
The IRS and U.S. Treasury have finalized a rule under the SECURE 2.0 Act that will require catch-up contributions to be Roth (after-tax) for high earners, starting in 2027. Some retirement plans may implement the change earlier, as soon as 2026, under a good faith interpretation of the law.
For small businesses and their employees, now’s the time to get ahead of this change, especially if your current retirement plan doesn’t yet offer a Roth 401(k) option.
What’s Changing?
Right now, workers age 50 and older can make catch-up contributions to their 401(k)s — an extra $7,500 on top of the regular $23,500 limit for 2025. For workers aged 60–63, a special “super catch-up” increases that limit to $11,250.
Today:
You can choose pre-tax (lowers your taxable income now) or Roth (pays taxes now, withdrawals later are tax-free), assuming your plan offers both.
Starting in 2027 (or 2026 for some):
If you earn more than $145,000 in wages from your current employer (adjusted for inflation annually), your catch-up contributions must go into a Roth 401(k). No more pre-tax deferrals.
If your 401(k) plan doesn’t offer a Roth option? You’ll be shut out of making catch-up contributions entirely until your plan is updated.
Key Considerations
- The $145,000 income threshold is based on prior-year wages with your current employer and applies separately to each employer.
- Self-employed individuals and new employees may be temporarily exempt from the rule, depending on how the IRS interprets earnings history.
- Only 16% of eligible workers made catch-up contributions in 2024, according to Vanguard, but those who did were typically earning $150,000+.
- This rule change is a result of SECURE 2.0, designed partly as a revenue generator — Roth contributions are taxed upfront, giving the IRS its cut sooner.
- Some experts suggest this could be a good time to revisit your retirement strategy. If you’re in a high tax bracket now and expect lower income in retirement, the Roth mandate may not be ideal. But if you’re planning to work and earn into retirement, building tax-free income could be a smart move.
Retirement Planning Shouldn’t Be an Afterthought
Whether you’re navigating this personally or thinking about how it affects your employees, now is the time to review your retirement benefits and make sure your plan meets evolving IRS requirements and your business goals.
That’s where Focus HR can help.
Focus HR’s 401(k) & Retirement Solutions
Every employee’s vision for retirement is different and so is every employer’s. At Focus HR, we make it easy to offer competitive retirement benefits without the admin headache.
We offer a Open Multiple Employer Plan (MEP) 401(k) — giving you all the advantages of a single-employer plan with the scale, simplicity, and savings of joining a larger pool.
We take on the fiduciary and administrative responsibilities, so you don’t have to. That means:
- 3(16) fiduciary plan administration services
- 3(38) fiduciary investment management
- Annual bond procurement
- Full census prep and testing
- 5500 filing and audit management (when required)
- Safe Harbor & Profit-Sharing Plans available
We handle the heavy lifting so you can focus on growing your business — not navigating IRS rule changes.
We’re not a broker or investment adviser ourselves, but our trusted partners provide all securities and investment advisory services.
Ready to future-proof your retirement plan?
Let’s make sure your 401(k) is up to date and your team is confident about retirement. Contact us to discuss today.
