From the official announcement by IRS ↗
The Department of Treasury and Internal Revenue Service (IRS) has released final regulations regarding catch-up contributions to 401(k)-style retirement plans — the extra money that workers aged 50 and older are permitted to contribute beyond the standard contribution limit. This regulation was officially enacted on September 15, 2025, after the agency received comments on the draft version released in January 2025.
The most significant change: high-income workers making catch-up contributions to retirement plans will no longer have the option to choose the traditional (pre-tax) method but are instead required to switch to a Roth account, meaning they pay taxes first before contributing to the fund. According to 24/7 Wall St., the income threshold applies to those earning over $150,000 in wages according to box 3 on the previous year's W-2 form.
Beginning after December 31, 2026, catch-up retirement contributions for high-income workers will be taxed before entering the plan fund.
New contribution levels
For workers aged 50 to 59, the standard catch-up contribution for 2026 is $8,000, added to the base limit of $24,500. Workers aged 60 to 63 receive a special catch-up contribution of up to $11,250 per year, raising the total contribution limit to $35,750 — but this benefit lasts only four years, and at age 64 the catch-up contribution returns to the standard $8,000.
Who is directly affected: older workers with high incomes, including many small business owners and self-employed individuals with their own business entities — a fairly common group in the Vietnamese-American community in middle and senior years who are accumulating retirement savings. The IRS also specified that fund administrators may combine wages that an individual receives from multiple companies with the same owner during the previous year to determine who falls under the mandatory Roth rule, and provided guidance on how to correct errors, implement automatic conversion to Roth, and apply the rules to plans covering participants in Puerto Rico.
Regarding timing: the mandatory Roth rule applies to contributions made in tax years beginning after December 31, 2026, with later effective dates for some local government plans and plans under collective bargaining agreements. The IRS also clarified that the administrative transition period under Notice 2023-62 — which allowed plans to delay implementation — will not be extended and will end on December 31, 2025.
One notable detail: SECURE 2.0 allows employers without a simple Roth 401(k) option to simply suspend catch-up contributions for all high-income employees, rather than having to establish a Roth option. See the official IRS announcement at the source link below.
Analysis
This regulation resolves a technical loophole in the 2022 SECURE 2.0 law: the original law contained a drafting error that created the risk of invalidating all catch-up contributions entirely, forcing the IRS to issue temporary administrative guidance before reaching final regulations. The shift from pre-tax contributions to Roth may sound like a technical detail, but it has real financial impact: according to 24/7 Wall St., a single filer in the 24% federal tax bracket will lose approximately $2,700 per year in tax deductions because they can no longer make pre-tax contributions. The offsetting benefit is that money in a Roth 401(k) account is no longer subject to required minimum distributions (RMD) during the account holder's lifetime, a change that took effect in 2024. The final rule, compared to the draft version from early 2025, added several technical provisions for businesses and local government plans after receiving public comments.
Diaspora Impact
Workers aged 50 and older, particularly small business owners, nail salon operators, and restaurant owners with personal income exceeding $150,000, should ask their human resources department or 401(k) plan administrator whether their plan already offers a Roth option — if not, the plan sponsor has the right to suspend catch-up contributions for the high-income group. Since the new rule applies to tax years beginning after December 31, 2026, readers still have time to plan with their tax professional and calculate the impact on their annual tax deductions. Readers do not need to file any applications or complete any procedures with the IRS at this time; all changes will be implemented by the retirement plan sponsor.
Bảo Nguyễn
Bảo Nguyễn founded Saigon Sentinel to give the Vietnamese diaspora truly independent, in-depth community coverage at a time when misinformation moves faster than fact-checks and the language barrier makes verification harder than it should be. He sets the editorial standards and quality controls that govern the reporting, chooses the subjects, writes and edits each article, reads it against its sources before publication, audits published output, and handles corrections.