The SECURE 2.0 Act passed right at the end of 2022. While it’s not quite BC (before COVID), it’s still nearly 3 years ago. Most notably, it adjusted the required minimum distribution (RMD) age for IRA owners not already subject to RMDs, but there was something else in there that needs a good refresher: Roth catch-up contributions for high earners. If that’s not ringing any bells or there’s a lot of cobwebs on that, you’re in good company, so let’s break it down.
What is a “catch-up” contribution?
Consider this a savings bonus for attaining at least age 50 at the end of the calendar year. This catch-up contribution allows a participant an extra savings opportunity. This extra contribution applies to various accounts: 401(k), 403(b), 457, SIMPLE plans, Traditional & Roth IRAs. The 2025 amount varies by account: $1,000 for a Traditional or Roth IRA, $3,500 for a SIMPLE plan, and $7,500 for a 401(k), 403(b), or 457. We do not have the 2026 numbers yet for these accounts.
You may remember hearing about the Super Catch-Up Contributions from us earlier this year, and that is still in play. If you can and are eligible, be sure to take advantage of this before year-end.
Even an H.S.A. has a catch-up contribution of $1,000, but you must be 55 or older to qualify.
So, what’s the catch?
Starting in 2026, if your 2025 wages exceed $145,000, your catch-up contributions to an employer plan must be made as Roth contributions. If you are all for paying your taxes now and taking advantage of that tax-free growth for retirement, this is good news for you! However, if you were hoping for tax planning purposes that you’d be able to lower your taxable income with pre-tax contributions, this may not be welcome news.
There is another potential rub. Not all employer plans offer a Roth option. If you’re in this boat, you will be ineligible to do catch-up contributions. To keep your savings on track, consider the following options:
- You may be able to max out a Roth IRA ($8,000 for 2025). Those income limits start phasing out at $150,000 for single filers and $236,000 for married filing joint filers.
- If you’re over the Roth IRA contribution limit, redirect what you were putting into the catch-up into a taxable brokerage account.
- If you’re eligible for an H.S.A. and aren’t already maxing it out, increasing those contributions without drawing on the account for medical expenses is a powerful tax-advantaged savings tool.
Not sure what to do?
If you find yourself having to change how you’re saving next year, please don’t hesitate to reach out to us. We’d be happy to discuss the options and provide a path forward toward creating a more tax-diversified portfolio.