Important changes are coming to your workplace retirement plan that could affect how you save. The Treasury Department and IRS finalized regulations that change how age-50+ catch-up contributions work for 401(k), 403(b), and governmental 457(b) plans.
What this means if you earn over the threshold
Starting January 1, 2026, if your prior-year FICA wages (from the employer that sponsors your plan) were $145,000 or more (indexed for inflation), your age-50+ catch-up contributions must be made as Roth. That means you pay the tax now, and qualified withdrawals in retirement are tax-free.
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If you’re at or below the threshold, you may continue to make catch-ups pre-tax or Roth—your choice.
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If your employer’s plan doesn’t offer a Roth feature, and you’re above the threshold, you won’t be able to make catch-ups until Roth is added.
Pro tip: that income test ties to your W-2 Box 3 (Social Security wages) from your plan’s employer.
Good news for workers approaching retirement
Effective in 2025, if you’re ages 60–63, your catch-up limit increases to the greater of $10,000 or 150% of the standard catch-up, indexed thereafter. Translation: these are prime years to top off the tank if you’re trying to accelerate savings.
Understanding the timeline
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Roth-only catch-ups for high earners start: January 1, 2026.
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Transition period ends: December 31, 2025 (plans should be ready by 2026).
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Broader regulation effective dates: Many provisions apply to tax years beginning after December 31, 2026 (i.e., 2027), with some later dates for certain governmental or collectively bargained plans.
What you should do now
These rules shift when you pay tax, not whether. For high earners, the move to Roth catch-ups can improve long-term tax diversification, but it changes the near-term tax bill. Review your elections, check whether your plan has a Roth option, and revisit your broader tax plan—especially if you expect higher tax rates later.
At Vested Partners, we’re monitoring the rollout and helping clients navigate the transition. Schedule an appointment or call our office at (540)389-6060 to dial in the right mix for your situation.
Legal and fiduciary services offered through Robyn Smith Ellis PLC.
Investment advice offered through Ellis Financial Group LLC, a Registered Investment Advisor in the state of Virginia.
Insurance products offered through Ellis Insurance Services LLC.
Investment advice offered through Ellis Financial Group LLC, a Registered Investment Advisor in the state of Virginia.
Insurance products offered through Ellis Insurance Services LLC.
