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Last month, the IRS issued final regulations related to several provisions of the SECURE 2.0 Act relating to employer sponsored retirement plan catch-up contributions. Some plans allow additional, or catch-up, contributions for employees 50 and over. For 2025, the regular limit is $23,500. The catch-up limit for those aged 50 and over is $7,500. Starting in 2025, there is a higher “super catch-up” limit of $11,250 or those turning age 60, 61, 62, or 63 during the year. But this is only if your employer’s plan allows it. Beginning in 2026 this new limit will be indexed for inflation.
Beginning on January 1, 2026, any employee classified as a “high-earner” – defined as someone who earned more than $145,000 in FICA wages in 2025 – will not be able to make pre-tax catch-up contributions in their tax-deferred account. Instead, those employees must contribute their catch-up contributions to a Roth account.
This is a good time to re-evaluate your retirement savings strategy. First, check with your plan to see if they allow catch-up contributions, and if they have a Roth account option. It appears that most plans have Roth options, but if yours does not you may be precluded from making catch-up contributions. There are some unique rules for SEPs, SIMPLE, 403b, and 457 plans, so check with your plans sponsor. Employees have until the end of the year to make pre-tax catch-up contributions.
One provision that does not get a lot of attention is Secure Act 2.0 fixed a provision in the first Secure Act which mandated required minimum distributions from Roth 401(k)s. In the past an average 401(k) participant who had a balance in the Roth portion of the employer’s plan could get caught in a catch 22 where the plan did not allow any distribution while the participant was still employed by the plan sponsor but the law still demanded a Roth distribution when the participant reached their required beginning date.
In my opinion, the pension rules for a qualified plan, much like the tax code, is less of unified system allowing all individuals to accumulate sufficient assets for retirement and more of a hodgepodge of legislation creating a level of complexity which can act to discourage participation by many in tax advantaged retirement savings and investments.
Savers are well advised to understand the plan rules as the likelihood of a getting to an appropriate unified system seems, in my opinion, to be nil.
Thanks Rick for the discussion of this topic to help everyone comply with the system we have.
Bill, thanks for the useful comment. I’ve read a few articles on Secure 2.0 and scanned the final rules, and the effective dates are a bit confusing. It reads that he final rules are for tax years after Dec 31, 2026, but plans can implement the changes in 2026. So it will be interesting to see how the implementation roles out. It definitely is a hodgepodge, and a challenge to keep up with.