New Roth 401(k) Contributions Rule Delayed by IRS: What To Know
The IRS is offering relief on new 401(k) catch-up contribution rules for certain high earners. Here’s what it means for you.
Recently, there’s been concern over planned changes to rules governing catch-up contributions for 401(k) plans. The changes, which initially weren’t going to be effective until 2024, will require catch-up contributions for higher-income earners to be made on a Roth basis. (Making catch-up contributions on an after-tax Roth basis means paying taxes on your retirement savings during the years when you usually earn more.)
Under SECURE 2.0, if you are at least 50 and earned $145,000 or more in the previous year, you can make catch-up contributions to your employer-sponsored 401(k) account. But you would have to make those extra contributions on a Roth basis, using after-tax money.
- You couldn’t get tax deductions on those catch-up contributions as you would with typical 401(k) contributions, but you could withdraw the money tax-free when you retire.
- The SECURE 2.0 Roth catch-up contribution rule won’t apply to taxpayers making $144,999 or less in a tax year.
Roth catch-up contributions glitch
While the new rule may seem reasonable, more clarity with implementing Roth catch-up contributions for 2024 was needed. When lawmakers drafted the Roth catch-up provisions of SECURE 2.0, they mistakenly left out specific language. As a result, under the current text of SECURE 2.0, no participant could make catch-up contributions (whether on a pre-tax or Roth basis).
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Also, as Kiplinger reported, hundreds of employers, plan sponsors, and organizations expressed concern that the new 401(k) contributions rule wouldn’t be able to be implemented by next year. Over 200 entities made up of Fortune 500 companies, firms, and public employers, including the American Retirement Association, Chipotle Mexican Grill, Fidelity Investments, Charles Schwab, Microsoft Corporation, and Delta Airlines, asked Congress for a two-year delay to the Roth catch-up rule to 2026.
A key reason is that new payroll systems and administrative work will be needed, which many employers feared couldn’t be implemented to allow participants to make Roth catch-up contributions next year.
IRS offers more time to prep for Roth catch-up contributions
However, in late August, the IRS announced relief for high earners subject to the rule, which is also welcome news for many plan sponsors and employers. The agency says Roth catch-up contributions for high earners age 50 or over won’t be required until 2026. (That’s a two-year delay of the new rule.)
The IRS also clarified that plan participants aged 50 or older can make pre-tax catch-up contributions in 2023 despite their income level.
What does this mean? If you’re at least 50 years old or older, no matter your income level, you can continue to make catch-up contributions on a pre-tax basis through your employer-sponsored retirement plan. However, according to the IRS, those catch-up contributions will eventually (in 2026), have to be made on a Roth basis if your income meets or exceeds the $145,000 threshold.
So, it’s still a good idea to start planning now and consult a trusted tax professional to determine the best way to maximize your retirement savings.
Related Content
-
What to Do If You Plan to Make Catch-Up Contributions in 2026Under new rules, you may lose an up-front deduction but gain tax-free income once you retire.
-
If You'd Put $1,000 Into Lowe's Stock 20 Years Ago, Here's What You'd Have TodayLowe's stock has delivered disappointing returns recently, but it's been a great holding for truly patient investors.
-
How to Max Out Your 401(k) in 2026 (New Limits are Higher)In 2026, the maximum contribution limits for 401(k) plans have increased, giving you an excellent shot at maximizing your retirement savings.
-
3 Major Changes to the Charitable Deduction for 2026Tax Breaks About 144 million Americans might qualify for the 2026 universal charity deduction, while high earners face new IRS limits. Here's what to know.
-
Retirees in These 7 States Could Pay Less Property Taxes Next YearState Taxes Retirement property tax bills could be up to 65% cheaper for some older adults in 2026. Do you qualify?
-
Estate Tax Quiz: Can You Pass the Test on the 40% Federal Rate?Quiz How well do you know the new 2026 IRS rules for wealth transfer and the specific tax brackets that affect your heirs? Let's find out!
-
5 Types of Gifts the IRS Won’t Tax: Even If They’re BigGift Tax Several categories of gifts don’t count toward annual gift tax limits. Here's what you need to know.
-
The 'Scrooge' Strategy: How to Turn Your Old Junk Into a Tax DeductionTax Deductions We break down the IRS rules for non-cash charitable contributions. Plus, here's a handy checklist before you donate to charity this year.
-
Are You Middle-Class? Here's the Most Tax-Friendly State for Your FamilyTax Tips We found the state with no income tax, low property tax bills and exemptions on groceries and medicine.
-
Social Security Benefits Quiz : Do You Know the IRS Tax Rules?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
-
How Are I Bonds Taxed? 8 Common Situations to KnowBonds Series I U.S. savings bonds are a popular investment, but the federal income tax consequences are anything but straightforward.
