{"id":271901,"date":"2025-11-04T23:59:16","date_gmt":"2025-11-04T23:59:16","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/271901\/"},"modified":"2025-11-04T23:59:16","modified_gmt":"2025-11-04T23:59:16","slug":"high-earners-rule-changes-401k-catch-ups","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/271901\/","title":{"rendered":"High Earners: Rule Changes 401(k) Catch-Ups"},"content":{"rendered":"

\"A <\/p>\n

\n Ajda Mljac \/ Getty Images <\/p>\n

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In September, the IRS finalized a rule<\/a> that changes how high-income workers ages 50 and older can make catch-up contributions to their 401(k)<\/a> and similar workplace plans. Starting in 2027, these contributions must be made as after-tax Roth contributions \u2014 potentially reshaping retirement strategies for millions.<\/p>\n

Here\u2019s a closer look at who this will affect \u2014 and whether it\u2019s for better or for worse<\/a>.<\/p>\n

Who the IRS Catch-Up Rule Applies To<\/p>\n

The changes will apply to high-income earners ages 50 and up who have access to a 401(k) or other similar workplace plan. It only applies to workers who made more than $145,000 from their current employer during the previous year.<\/p>\n<\/p>\n

Changes are set to go into effect in 2027, but the IRS notes that \u201cfinal regulations also permit plans to implement the Roth catch-up requirement for taxable years beginning before 2027 using a reasonable, good faith interpretation of statutory provisions,\u201d so some plans may institute the change sooner.<\/p>\n

Why Roth Catch-Ups May Benefit High Earners<\/p>\n

Having to make catch-up contributions<\/a> as Roth contributions does offer less flexibility than was previously available, but ultimately, this could be a positive change for high earners.<\/p>\n

\u201cThe mandate is a blessing in disguise for most in that cohort,\u201d said David Johnston, CFP, partner at One Point BFG Wealth Partners<\/a>. \u201cThe mandate will simply make those higher earners do what they should have already been doing \u2014 forgo today\u2019s (relatively small) tax deduction and instead, gain tax-free withdrawals in the future.\u201d<\/p>\n

Making catch-up contributions as Roth contributions adds some valuable tax diversification<\/a> during the retirement income distribution phase, Johnston said.<\/p>\n

New \u2018Super Catch-Up\u2019 Limits for Savers Ages 60 to 63<\/p>\n

The new IRS ruling also allows employees between the ages of 60 and 63 and employees in SIMPLE plans to make increased catch-up contributions. The \u201csuper catch-up\u201d limit is the greater of $10,000 or 150% of the regular age 50-plus catch-up limit. <\/p>\n

\u201cSure, it may have to go to the Roth bucket, but that\u2019s a good thing,\u201d Johnston said.<\/p>\n

Potential Drawbacks and Compliance Challenges<\/p>\n

Although Johnston sees the new regulations as an overall net positive, he does acknowledge that there are some drawbacks<\/a>.<\/p>\n

\u201cThe obvious downside is that the catch-up contributions for those higher earners will no longer garner a current income tax deduction,\u201d he said. \u201cIn short, their take-home pay will take a bit of a haircut.\u201d<\/p>\n<\/p>\n

Additionally, there are obstacles to the material changes the IRS puts out. <\/p>\n

\u201cPlan sponsors need to adopt the provisions, and even more importantly, plan custodians and payroll providers need to upgrade and update their systems to accommodate the changes and remain compliant,\u201d Johnston said.<\/p>\n

The regulations don\u2019t require retirement plans to allow Roth contributions, so not everyone will have access.<\/p>\n

\u201cPlan participants over the income $145,000 threshold employed by companies that don\u2019t make Roth contributions available, won\u2019t be permitted to make catch-up contributions at all,\u201d Johnston said.<\/p>\n","protected":false},"excerpt":{"rendered":"Ajda Mljac \/ Getty Images Commitment to Our Readers GOBankingRates’ editorial team is committed to bringing you unbiased…\n","protected":false},"author":2,"featured_media":271902,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39],"tags":[5097,28,17299,147,530,1666],"class_list":{"0":"post-271901","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-401k","9":"tag-business","10":"tag-gobankingrates","11":"tag-personal-finance","12":"tag-personalfinance","13":"tag-retirement"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/271901","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=271901"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/271901\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/271902"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=271901"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=271901"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=271901"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}