The IRS Just Changed The Retirement Savings Rules For Workers Aged 50+ Who Make Over $145K

Big changes are coming to how some employees save for retirement, thanks to new IRS regulations tied to the SECURE 2.0 Act. These updates will impact workers making over $145,000 a year and could create extra work for employers and HR departments if they’re not prepared, according to Principal. 

What’s Changing?

Starting January 1, 2026, workers aged 50 or older who want to make “catch-up” contributions to their 401(k) or similar retirement plan — and who earned more than $145,000 in wages the year before — will only be allowed to make those extra contributions using Roth (after-tax) dollars.

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This change applies to:

• 401(k)
  
• 403(b)
  
• Government 457(b) plans
  
• SIMPLE 401(k) and SIMPLE IRA plans
  
• SARSEPs
  

Why It Matters to Workers

For high earners over 50, catch-up contributions are a valuable way to boost retirement savings. In 2025, those employees can contribute an additional $7,500 on top of the regular $23,000 limit. But under the new rules, that extra money must now be taxed up front, since Roth contributions are made with after-tax dollars.

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If you’re used to making pre-tax catch-up contributions, this will feel like a pay cut on your take-home income unless your plan offers Roth. That’s a big shift in how older, higher-earning workers need to think about their savings strategy.

Why It Matters to Employers

For HR and payroll teams, these new rules add complexity. Retirement plans that don’t currently support Roth contributions will need to update their systems — or stop offering catch-up contributions to high earners altogether.

Employers will also need to:

• Track employee income from the prior year (specifically, FICA wages shown in Box 3 of Form W-2).
  
• Offer employees a chance to opt out of catch-up contributions.
  
• Update plan documents and employee communications by the January 1, 2026 deadline.
  

To ease the transition, the IRS says employers can rely on a “reasonable good faith effort” to comply through 2026. But full compliance will be expected by January 1, 2027.

Bottom Line

If you’re a worker over 50 making more than $145,000 a year, expect to make Roth-style catch-up contributions starting in 2026. And if you’re on an HR, payroll, or benefits team, now’s the time to ensure your plan is set up to handle these new requirements.

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It’s a change that brings added tax clarity and future tax-free growth for workers — but also a fair amount of prep work for plan sponsors and benefits teams.

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