Finance & Jobs

The Hidden Cost of SECURE 2.0: How the New Roth Catch-Up Rule Changes Retirement Saving for High Earners

When Congress passed the SECURE 2.0 Act, it was marketed as a sweeping reform to help Americans save more for retirement. Yet one subtle clause—the new Roth catch-up requirement—has quietly transformed how older, higher-income workers fund their final years of saving.


While the law still allows catch-up contributions, it removes the pre-tax deduction for many earners, shifting billions of dollars in near-retirement savings into Roth (after-tax) form.

What’s Changing Under SECURE 2.0
Starting January 1, 2026, anyone earning more than $145,000 in FICA wages (indexed for inflation) will no longer be able to make pre-tax catch-up contributions to their 401(k), 403(b), or 457(b) plans. 

Instead, all catch-up dollars must be placed into Roth accounts, meaning workers will pay taxes upfront on those contributions.

Quick Breakdown:

Plan Type Old Rule New Rule (SECURE 2.0) Who’s Affected
401(k), 403(b), 457(b) Catch-ups can be pre-tax or Roth (your choice). If prior-year wages > $145K → catch-ups must be Roth. High earners age 50 +
SIMPLE IRA Catch-ups remain pre-tax; limit rises 10 %. No forced Roth. Small-business employees
Traditional / Roth IRA No change; $1,000 catch-up remains. Still pre-tax (Traditional) or after-tax (Roth). All eligible investors
SEP IRA No Roth catch-up requirement. No change. Self-employed

Additionally, workers ages 60–63 get a temporary “super catch-up” of 150 % of the standard limit.
If the regular catch-up is $7,500, that means $11,250 for these older workers—also subject to the Roth rule if they earn > $145,000.

Who Will Feel It the Most
This rule hits older, higher-income employees—those in their peak earning years—who historically used catch-ups to trim taxable income. 

The government’s rationale? To collect taxes sooner, boost short-term revenue, and push more savers toward Roth accounts, where withdrawals are tax-free later.

The Numbers: Pro-Forma Tax & Retirement Growth Models

Below are realistic models comparing pre-tax vs. Roth catch-up contributions for workers aged 55, 60, and 65 with different income levels.

Assumptions: 6 % annual return; 32 % tax rate while working; 22 % in retirement; 10-year horizon.

Scenario 1: Age 55, Income $100,000 (Below Threshold)

  • Eligible for pre-tax catch-ups.
  • Contributes $7,500 annually for 10 years.
  • Effective investment growth (6 %) → ≈ $103,000 at retirement.
  • Taxes paid on withdrawal (22 %) → net ≈ $80,000.

Result: Keeps the $2,400 annual tax deduction today and still benefits from compounding.
Old rule still applies—pre-tax remains best for moderate earners.

Scenario 2: Age 55, Income $160,000 (Above Threshold)

  • Forced into Roth catch-up starting 2026.
  • Pays $2,400 tax each year on $7,500 contribution (no deduction).
  • Roth grows to ≈ $103,000; all withdrawn tax-free.

If instead she could’ve invested pre-tax and paid 22 % later, she’d net ≈ $80,000.
Under Roth, she nets ≈ $103,000 after tax—a $23,000 advantage if future tax rates stay the same or rise.
But it requires paying extra tax now—reducing near-term cash flow.

Scenario 3: Age 60, Income $250,000 (Super Catch-Up, Roth Required)

  • Can contribute $11,250 per year for 5 years (60–63).
  • Total contributions $56,250 → ≈ $75,200 after 5 years at 6 %.
  • If pre-tax, immediate tax savings would have been $18,000 over 5 years.
  • Roth version → no deduction today, but withdrawals tax-free.

If this person expects a lower retirement bracket (22 %), they lose short-term liquidity but gain long-term tax-free growth.
If future tax rates rise or they plan to leave the Roth to heirs, the shift can still be a win.

Scenario 4: Age 65, Retired, Withdrawing

  • Pre-tax account balance $500,000 → after 22 % tax = $390,000 net.
  • Roth account $500,000 → withdrawals $0 tax.
    If most savings were converted to Roth catch-ups, retirees face fewer required minimum distributions (RMDs) and better estate outcomes.

Winners & Losers

Group Impact
High earners 50 + Lose the upfront tax break; pay higher tax now.
Moderate earners (< $145K) Keep both options (pre-tax or Roth).
Late savers (60–63) Gain larger catch-up room but may owe tax now.
Government Collects more revenue today; reduces future tax liability.
Financial planners & advisors Must recalculate tax-efficiency & plan amendments before 2026.

Why the Government Made This Change

The Roth catch-up mandate isn’t accidental—it’s about budget math and behavioral policy.

  1. Immediate revenue: Taxes are collected upfront rather than decades later.
  2. Equity argument: Prevents the wealthy from indefinitely deferring taxes.
  3. Promotes Roth culture: Encourages after-tax saving and tax diversification.
  4. Simplifies plan design: Less complexity around mixed pre-/post-tax tracking.
  5. Encourages earlier saving: Without a tax break later in life, workers may start saving sooner.

Upsides and Downsides

Upsides

  • Roth savings grow tax-free and avoid future RMDs.
  • May reduce tax exposure for heirs.
  • Helps diversify future tax risk (mix of pre-tax + Roth assets).
  • Short-term budget gain for the U.S. Treasury.

Downsides

  • Loss of valuable deduction when marginal rates are highest.
  • Less cash on hand for late-career expenses.
  • Inflexibility—no option to choose between Roth or traditional catch-ups.
  • Plans without Roth features must be amended or participants lose the catch-up entirely.

What Savers Should Do Before 2026

  1. Check if your employer’s plan offers Roth 401(k) options.
    If not, urge HR to update the plan before January 1, 2026.
  2. Track your FICA wages—threshold applies per employer.
  3. Run a tax simulation with your advisor: compare current vs. future brackets.
  4. Consider Roth conversions while rates remain low through 2025 (TCJA sunsets after).
  5. Diversify contributions: maintain both pre-tax and Roth buckets for flexibility.

The Bottom Line
 The SECURE 2.0 Act didn’t eliminate catch-up contributions—it eliminated the tax break for higher-income savers.

For many Americans, that means paying taxes today instead of tomorrow.
Whether it’s a burden or a blessing depends on your income, your future tax outlook, and how wisely you invest the savings that remain.

The good news? With foresight and smart planning, older workers can still use Roth catch-ups to secure a tax-free income stream in retirement—and perhaps turn this legislative curveball into a financial advantage.

-Nguyễn Bách Khoa-

Further Reading & References