On 16 September 2025, the US Treasury and the IRS published final regulations under the SECURE 2.0 Act that change a familiar part of retirement saving.
From 1 January 2026, employees whose wages from the plan sponsor exceeded US$145,000 in the prior year must make any catch-up contributions to a 401(k) as Roth contributions, that is, with after-tax money. Catch-up contributions are the extra amount that people aged 50 and over are allowed to add.
The rule affects a defined group of people. The question behind it affects everyone who saves for retirement in a tax-advantaged account: do I want to pay the tax now, or later?
A tax deduction is a loan from the government that you repay later, at a rate you do not yet know.
Two accounts, one question
| Traditional (pre-tax) | Roth (after-tax) | |
|---|---|---|
| Contribution | Reduces taxable income now | Made from income already taxed |
| Growth | Not taxed while inside the account | Not taxed while inside the account |
| Withdrawal in retirement | Taxed as ordinary income | Qualified withdrawals not taxed |
| Required distributions | Yes, from the required age | Roth 401(k) rules depend on the plan and on later changes |
| You are betting on | A lower tax rate in retirement than today | A higher or equal tax rate in retirement |
The rule removes the choice for catch-up contributions of higher earners. It does not remove the question.
What else sits in the same law
Two other parts of the SECURE 2.0 framework matter for planning:
- Required minimum distributions begin at age 73 for people who turn 73 before 2033, and at 75 for those who turn 73 after 2032 (generally those born in 1960 or later).
- Inherited retirement accounts. Final regulations effective 1 January 2025 require beneficiaries of an owner who died on or after their required beginning date to take annual distributions during the ten-year payout window, not only to empty the account by the end.
The fundamentals
Tax diversification is a real thing. Holding some retirement money in pre-tax accounts and some in Roth accounts gives flexibility later: you can draw from whichever has the better tax outcome that year. Not knowing future tax rates is the reason to hold both.
Compare marginal rates, not average rates. The deduction today is worth your marginal rate, the rate on the last dollar you earn. The tax in retirement will also be at a marginal rate, on the last dollar withdrawn. The comparison is between those two numbers.
Where an asset sits matters. Assets expected to grow most are often better placed in the account where growth is never taxed, and income-producing assets where their tax cost is lowest. The answer depends on the full picture.
Taxes are a constraint, not an objective. A plan driven only by minimizing this year's tax can produce a worse after-tax outcome overall.
Practical implications
- Check whether the rule applies to you: prior-year wages from the plan sponsor above the threshold, and age 50 or over.
- Confirm that your plan offers Roth contributions. The final rules require plans that offer catch-up contributions to allow Roth for those subject to the rule.
- Estimate your tax rate now and in retirement, with a range, since you cannot know. Decide how much to hold in each type of account.
- Review beneficiary designations, and tell heirs about the annual distribution requirement for inherited accounts.
- Mark your required-distribution age on your calendar based on your birth year.
Update, October 2026: what the following months added
The IRS published the 2026 limits: US$24,500 for 401(k) employee deferrals, US$7,500 for IRAs, and a US$8,000 catch-up for those aged 50 and over, according to the IRS announcement of the cost-of-living adjustments.
What we could not confirm
The body of this post reflects what was known on 23 September 2025; later developments are in the update section. We relied on law-firm and benefits-adviser summaries of the final regulations (T.D. 10033) and did not read the Federal Register text, and the wage threshold is indexed and may change. Plan-specific details vary. This is education, not tax or investment advice.
Sources
- Groom Law, Trucker Huss and Benefits Law Advisor summaries of T.D. 10033 (September to October 2025)
- Kitces and Mercer on SECURE 2.0 required minimum distributions; Congressional Research Service, IF12750
- IRS, 401(k) limit increases to US$24,500 for 2026, IRA limit increases to US$7,500