$145,000 Roth Catch-Up Rule Explained for 401(k) Plans

Retirement planning isn't just about saving money; it's about understanding the ever-changing tax rules that govern how you save. The IRS has just finalized regulations under the SECURE 2.0 Act, and if you're a high-income professional, there's a $145,000 rule you can't afford to ignore.

For years, workers over age 50 have been able to make "catch-up contributions" to their retirement accounts; an extra $7,500 in 2025 on top of the standard $23,500 401(k) contribution limit. Historically, you could choose whether those dollars went into a pre-tax 401(k) bucket (reducing taxable income today) or a Roth 401(k) bucket (paying tax now in exchange for tax-free growth later).

However, starting in 2027, that choice will disappear for high earners. The new IRS rules mean that if your wages exceed a set threshold ($145,000, indexed for inflation), all your catch-up contributions must go to a Roth.

This represents a significant shift in how retirement contributions are taxed for high-income earners. Let's break it down.

The Roth-only requirement is official.
If you're age 50+ and earned more than $145,000 (wages subject to Social Security/Medicare tax) in the prior year, your catch-up contributions can't go into a pre-tax account anymore. They must be Roth.

The timeline is delayed.
Initially slated for 2024, the IRS pushed back implementation twice after plan administrators complained about the logistics. The final rules state that the Roth-only rule will take effect starting in 2027. Until then, you can still choose between a pre-tax or Roth option for catch-ups.

The $145,000 threshold will adjust.
That dollar amount isn't static. The IRS will index it for inflation, but the base year is 2024, which means the first threshold is locked at $145,000.

Plans must be Roth-ready.
If your employer's 401(k) doesn't currently offer a Roth option, they'll need to add one before 2027. Otherwise, high earners won't be able to make catch-up contributions at all.

No more immediate tax deduction.
Historically, pre-tax catch-ups have helped reduce taxable income, which is especially valuable for individuals in the top federal bracket (37%) and those residing in high-tax states like California or New York. That option is going away.

Accelerated tax collection.
By forcing Roth contributions, the IRS collects taxes up front rather than decades later. Think of this as a stealth revenue-raiser.

Bigger Roth balances.
On the flip side, this could be a blessing for long-term investors. A forced Roth contribution means more money compounding tax-free, potentially creating a larger pool of tax-free withdrawals in retirement.

Plan design headaches.
Employers must ensure that their payroll systems, plan documents, and record-keepers are aligned. High earners should monitor whether their plan is Roth-enabled and compliant before 2027.

Revisit Roth vs. Pre-Tax Balances.
If your retirement accounts are already heavily weighted to pre-tax dollars, this forced Roth contribution could help diversify tax buckets. If you're already Roth-heavy, you may want to explore other tax-deferral strategies outside of the 401(k).

Maximize Pre-Tax While You Still Can.
In 2025 and 2026, you will still control where catch-up contributions are allocated. If you want to squeeze in more pre-tax savings before the rule flips, now's the time.

Coordinate With Tax Strategy.
High earners with RSUs, stock options, business income, or real estate should integrate this shift into their broader tax planning. If catch-ups won't reduce taxable income after 2026, other strategies—like defined benefit plans, charitable trusts, or accelerated depreciation—become more important.

Confirm Your Employer's Readiness.
If your company doesn't offer a Roth 401(k) feature, push HR to add one. Without it, you could lose the ability to make catch-up contributions altogether.

• Age 50+ employees in 401(k), 403(b), or government 457(b) plans.
• High earners making more than $145,000 in the prior year's wages are subject to FICA.
• Executives, tech professionals, and entrepreneurs often exceed this threshold.

Sarah is a senior engineering director at a Fortune 500 tech company. Her base salary is $210,000, accompanied by a substantial annual bonus and significant restricted stock units (RSUs) that vest annually. Like many of her peers, she's diligent about maxing out her retirement contributions.

Here's her situation in 2025:

• Base salary (FICA wages): $210,000
• Standard 401(k) contribution: $23,500 (pre-tax)
• Catch-up contribution (age 55): $7,500 (pre-tax)
• Total 2025 contributions: $31,000
• Marginal tax bracket: 37% federal + 9% California state

For Sarah, those pre-tax catch-up contributions lower her taxable income by $7,500. At her combined 46% marginal rate, that's an immediate tax savings of roughly $3,450 per year.

But in 2027, when the new Roth-only rule kicks in, Sarah won't have that choice anymore. Her $7,500 catch-up contribution must go into a Roth account. That means:

• She'll pay $3,450 more in taxes today (since she no longer gets the deduction).
• She'll accumulate $7,500 in Roth savings each year, money that grows tax-free and can be withdrawn tax-free in retirement.

Over a 10-year period (age 55 to 65), that's $75,000 in Roth contributions, potentially compounding into $120,000–$150,000 in tax-free withdrawals by the time she retires, depending on market performance.

For Sarah, the tradeoff is clear: she loses short-term tax relief but gains a powerful long-term Roth bucket that complements her already large pre-tax 401(k) and IRA balances.

• Plan for higher taxable income in the near term. High earners like Sarah may see their annual tax bill rise once Roth-only catch-ups take effect.
• Diversify tax buckets. By the time Sarah retires, she'll have both pre-tax and Roth money, giving her flexibility to manage tax brackets in retirement.
• Use the transition years wisely. Sarah has 2025 and 2026 to continue making pre-tax catch-ups. If she expects unusually high income in those years, locking in the deduction now may be a good strategy.
• Layer other strategies. Given Sarah's equity compensation and California tax exposure, she may also consider strategies such as tax-loss harvesting, charitable giving, or even a defined benefit plan to offset her higher taxable income after 2026.

The Roth catch-up mandate is part of a broader trend: Washington aims to accelerate tax revenue by encouraging more savings to be deposited into Roth accounts. Pre-tax deferrals shrink today's tax base; Roth contributions lock in tax payments now.

For high-income professionals, this highlights the importance of being proactive rather than reactive. Retirement accounts are no longer set-it-and-forget-it vehicles; they're part of an evolving tax chessboard.

The $145,000 Roth catch-up rule is more than just a footnote in the SECURE 2.0 Act—it's a signal of where retirement policy is heading. For high earners, the tax landscape of your 401(k) will look very different in just a few years.

Now is the time to plan; review your retirement account mix, coordinate with your tax strategy, and make sure your employer's plan will allow Roth contributions. By taking action now, you'll turn a regulatory headache into an opportunity for smarter, more tax-efficient wealth building.