SECURE 2.0 Act: Roth 401(k) Catch-Up Payments

The SECURE 2.0 Act mandates high-income earners ($145,000+) to make 401(k) catch-up payments to Roth accounts starting in 2026, impacting tax benefits. Companies increasingly offer Roth 401(k) options.

The internal revenue service issued brand-new regulations last month to implement a provision of a 2022 legislation called the SECURE 2.0 Act, which needs that high income earners that made $145,000 or more in gross earnings as an individual the previous year make 401( k) catch-up payments to after-tax Roth accounts beginning with the 2026 tax obligation year.

SECURE 2.0 Act Implementation

The SECURE 2.0 Act calls for that people that made at the very least $145,000 in gross earnings to make 401( k) catch-up contributions to after-tax Roth accounts beginning following tax year. Damir Khabirov – stock.adobe.com

Impact on Tax Benefits

Making catch-up payments on a before-tax basis enabled employees to obtain an upfront tax break by utilizing a deduction to lower their gross income– however the adjustment means that high earners over the income threshold will not have that option beginning in the 2026 tax obligation year.

The SECURE 2.0 Act requires that individuals who earned at the very least $145,000 in gross income to make 401( k) catch-up payments to after-tax Roth accounts beginning following tax obligation year. Damir Khabirov– stock.adobe.com

Under the regulations that will remain effectively with the 2025 tax obligation year, workers aged 50 and up were eligible to make their 401( k) catch-up payments to either a before-tax traditional account or an after-tax Roth account, relying on their choice and what their retirement plan allows.

In 2025, qualified employees over the age of 50 can make an extra $7,500 in contributions to their 401( k) in catch-up payments along with the typical payment limitation of $23,500 for employees under 50.

Roth 401(k) Options Increase

The Wall Road Journal reported that companies have been including Roth 401( k) options, with Fidelity now including it as an alternative in 95% of taken care of strategies, up from 73% 2 years ago, while 86% of Vanguard-managed 401( k) prepares deal a Roth.