The IRS has finalized rules that will change how higher-income workers age 50 and older make catch-up contributions to 401k plans. Beginning in 2027, individuals who earned more than $145,000 in the prior year will be required to make these contributions on a Roth basis, paying taxes upfront rather than receiving an immediate deduction.
The regulations, issued September 15, 2025, implement provisions of the SECURE 2.0 Act. The $145,000 income threshold will be adjusted annually for inflation, keeping the requirement focused on higher earners over time.
The change affects workers who currently use pre-tax catch-up contributions to lower their taxable income. Under the new framework, these contributions will be taxed in the year made but will grow tax-free and can be withdrawn tax-free in retirement.
For business owners and self-employed individuals using Solo 401k plans, the rule could influence retirement contribution strategies, particularly for those who have maximized pre-tax contributions in the past.
Impact on High Earners
Under the new rules, workers age 50 and older who earned more than $145,000 in the prior year will be required to make catch-up contributions on a Roth basis beginning in 2027. Instead of receiving a tax deduction at the time of contribution, these amounts will be taxed upfront but will grow tax-free and can be withdrawn tax-free in retirement.
The IRS also clarified that plan administrators may aggregate wages from related employers when determining whether an employee exceeds the $145,000 threshold. This provision addresses workers employed by multiple businesses under common ownership or those with complex employment arrangements.
In addition, the regulations specify that if a plan permits Roth catch-up contributions for higher-income participants, the same option must be available to all eligible participants. The rule is intended to maintain consistency across retirement plans.
Enhanced Catch-Up Limits Already in Effect
Although the Roth requirement does not take effect until 2027, higher catch-up contribution limits for workers ages 60 to 63 are already available beginning in 2025. Eligible participants in this age group can contribute up to $11,250 in catch-up contributions, compared with the standard $7,500 limit for workers age 50 and older.
The provision reflects recognition that individuals in their early 60s are often in peak earning years and may seek to increase retirement savings as they approach retirement. When combined with regular 401k contribution limits, the higher threshold allows participants in this age bracket to set aside more than in prior years.
SIMPLE IRA participants are also eligible for these expanded limits, but they are exempt from the mandatory Roth requirement that applies to 401k plans.
Implications for Business Owners and Plan Sponsors
The new rules affect both the personal retirement planning of business owners and their responsibilities as plan sponsors. High-earning owners will be subject to the requirement that all catch-up contributions be made as Roth contributions starting in 2027, which changes the tax treatment of these contributions.
The transition period runs through December 31, 2025, giving plan administrators more than a year to make the necessary adjustments. Plans may also choose to adopt the Roth catch-up requirement earlier if they rely on a reasonable, good faith interpretation of the rules.
For self-employed professionals, the changes underscore the value of flexible plan structures. A Solo 401k allows maximum contributions while providing options for adapting to evolving tax requirements.
The rules reflect a broader shift toward Roth-style retirement savings for higher earners. While the immediate tax impact may be greater than with pre-tax contributions, the long-term benefit of tax-free growth and withdrawals may be significant, particularly for younger workers with longer investment horizons.
Sources: IRS Newsroom, Federal Register