Treasury, IRS finalize rule for 401(k) catch-up contributions

The IRS and U.S. Department of the Treasury this week finalized rules for certain provisions from the Secure 2.0 Act of 2022, including catch-up contributions for 401(k) and other plans, which apply to workers age 50 and older.

Starting in 2027, catch-up contributions generally must be after tax (also called Roth), rather than pretax, for workers who made more than $145,000 from their current employer during the previous year. But some plans could make the change in 2026 “using a reasonable, good faith interpretation of statutory provisions,” the IRS said.

In the meantime, those investors can pick between pretax and Roth retirement catch-up contributions, assuming their workplace plans have both choices and their cash flow permits, experts say.

Lawmakers added the Roth catch-up contribution provision to Secure 2.0 as a “pay-for” to help fund the legislation.

Roth contributions are after-tax deposits, but the funds grow tax-free. By comparison, pretax contributions reduce your adjusted gross income upfront, but you owe regular income taxes when you withdraw the funds.

Of course, you need to consider your full financial picture when making Roth contributions since a higher AGI can impact eligibility for other deductions.

“Now is the time to work with your advisor or tax preparer to run multi-year tax projections,” said CFP Patrick Huey, owner of Victory Independent Planning in Portland, Oregon. 

This could help you decide whether to “accelerate” pretax catch-up contributions through 2026 or “embrace the transition to Roth” sooner, he said.

For 2025, workers can defer up to $23,500 into 401(k)s, and investors age 50 and older can make an extra $7,500 in catch-up contributions. There is also a “super catch-up” contribution for workers aged 60 to 63, which raises the catch-up limit to $11,250.

In 2024, nearly all retirement plans offered catch-up contributions, but only 16% of eligible workers made these deferrals, according to a 2025 Vanguard report based on more than 1,400 plans and nearly 5 million participants.

Most catch-up contribution participants earned $150,000 or more, the report found.

However, the choice between Roth vs. pretax catch-up contributions may depend on several factors, including current and expected future tax brackets, experts say.

The “key takeaway” for investors is, “do not sit on the sidelines” as the rules change, said certified financial planner Jared Gagne, assistant vice president and private wealth manager with Claro Advisors in Boston.