New IRS Rule Changes How You Can Save for Retirement: What High Earners Need To Know
Written by
Gabrielle Olya
Edited by
Molly Sullivan
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In September, the IRS finalized a rule that changes how high-income workers ages 50 and older can make catch-up contributions to their 401(k) and similar workplace plans. Starting in 2027, these contributions must be made as after-tax Roth contributions — potentially reshaping retirement strategies for millions.
Here’s a closer look at who this will affect — and whether it’s for better or for worse.
Who the IRS Catch-Up Rule Applies To
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.
Changes are set to go into effect in 2027, but the IRS notes that “final 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,” so some plans may institute the change sooner.
Why Roth Catch-Ups May Benefit High Earners
Having to make catch-up contributions as Roth contributions does offer less flexibility than was previously available, but ultimately, this could be a positive change for high earners.
“The mandate is a blessing in disguise for most in that cohort,” said David Johnston, CFP, partner at One Point BFG Wealth Partners. “The mandate will simply make those higher earners do what they should have already been doing — forgo today’s (relatively small) tax deduction and instead, gain tax-free withdrawals in the future.”
Making catch-up contributions as Roth contributions adds some valuable tax diversification during the retirement income distribution phase, Johnston said.
New ‘Super Catch-Up’ Limits for Savers Ages 60 to 63
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 “super catch-up” limit is the greater of $10,000 or 150% of the regular age 50-plus catch-up limit.
“Sure, it may have to go to the Roth bucket, but that’s a good thing,” Johnston said.
Potential Drawbacks and Compliance Challenges
Although Johnston sees the new regulations as an overall net positive, he does acknowledge that there are some drawbacks.
“The obvious downside is that the catch-up contributions for those higher earners will no longer garner a current income tax deduction,” he said. “In short, their take-home pay will take a bit of a haircut.”
Additionally, there are obstacles to the material changes the IRS puts out.
“Plan 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,” Johnston said.
The regulations don’t require retirement plans to allow Roth contributions, so not everyone will have access.
“Plan participants over the income $145,000 threshold employed by companies that don’t make Roth contributions available, won’t be permitted to make catch-up contributions at all,” Johnston said.
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