Dana is 56, a hospital finance director earning $168,000, and she has made catch-up contributions to her 401(k) for years. Every January she bumps the election, enjoys the smaller tax bill that follows, and moves on. Then her plan administrator sends a notice saying that starting in 2026, her catch-up dollars must go in as Roth. No choice. Her husband, a federal employee, glances over and asks the obvious question: "Does this hit my TSP too?"

Both questions are fair, and the answers are more specific than the headlines made them sound.

Where the rule came from

The requirement comes from Section 603 of SECURE 2.0, signed on December 29, 2022 as part of the Consolidated Appropriations Act, 2023. It says that workers age 50 and older whose wages from the plan sponsor exceeded a set threshold in the prior year must make their catch-up contributions on a Roth basis. Pretax catch-ups are off the table for them.

Congress had a budget reason. Roth contributions are taxed up front, so they pull revenue forward into the ten-year scoring window. That helped pay for other provisions in the law. The policy argument was a bonus: higher earners get the most from pretax deductions, so this nudges them toward tax-free growth instead.

The delayed start

The original effective date was tax years beginning after December 31, 2023. A drafting error in the statute, however, appeared to eliminate catch-up contributions altogether for some people, and plan providers could not realistically build systems around that confusion.

The IRS responded with an administrative transition period in Notice 2023-62, pushing enforcement to 2026. Final regulations followed in 2025. Plans are expected to comply in good faith starting in 2026, and the regulations themselves apply to taxable years beginning after December 31, 2026. If you remember the rule being "delayed," that is the reason.

Who counts as a high earner

The test is narrower than many people assume.

  • It looks at last year's wages. The measure is your Social Security (FICA) wages from the employer sponsoring the plan, the figure in Box 3 of your W-2, for the prior calendar year.
  • The threshold is indexed. It started at $145,000 and is adjusted for inflation. For 2026 it is $150,000, based on 2025 wages. Check irs.gov for the current number, because it moves.
  • It is per employer. Your spouse's pay, rental income, or a side business does not count. Neither does a different employer's paycheck.
  • A salary jump has a lag. If you cross the line in 2026, the Roth requirement generally begins in 2027.
  • New hires are usually exempt. No prior-year wages from the sponsoring employer means no test to fail that year.

Box 3 can differ from the salary you think you earn. Wages above the Social Security wage base do not appear in Box 3 for Social Security purposes, so for very high earners the box tops out at the base. That still lands them above the threshold, so it rarely changes the outcome. Pretax deferrals, though, do not reduce Box 3 wages, so contributing heavily to a 401(k) will not shield you from the test.

What actually changes

Only the catch-up portion is affected. Your regular elective deferrals can still go in pretax. For 2026 the standard deferral limit is $24,500, with an $8,000 catch-up for those 50 and older. The enhanced catch-up for ages 60 through 63, also created by SECURE 2.0, is $11,250. These figures are adjusted regularly, so confirm them at irs.gov before setting elections.

Back to Dana. She plans to contribute the maximum plus the $8,000 catch-up. In the 24 percent bracket, the lost deduction on that $8,000 costs her about $1,920 more in tax each year. Her paycheck shrinks accordingly. That money does not vanish. It goes into a Roth bucket where qualified withdrawals come out tax-free, and Roth 401(k) accounts no longer carry required minimum distributions during the owner's lifetime.

Whether that is a good trade depends on the future. If Dana expects a lower bracket in retirement, she gave up a better deduction than she will ever get back. If she expects the same or higher, the Roth catch-up is neutral to favorable. Most people cannot know, which is the argument for holding both pretax and Roth money.

The catch most people miss

A plan that does not offer a Roth option cannot take Roth catch-ups. For affected high earners, the practical result is that they cannot make catch-up contributions at all. Many employers have been adding Roth features for that reason. If yours has not, ask your benefits office now rather than in December.

Also worth knowing: this rule does not apply to SEP or SIMPLE IRAs, and it does not touch traditional or Roth IRAs. IRA catch-up contributions are a separate, much smaller $1,000 amount that is indexed over time. Nothing about Section 603 changes where or how you make them.

What about the TSP?

This is where Dana's husband should slow down. The Thrift Savings Plan is run by the Federal Retirement Thrift Investment Board under its own statute, and it already offers both traditional and Roth balances plus catch-up contributions. How the board applies Section 603 to TSP participants, and on what timeline, is something it announces itself. Do not assume a private-sector notice describes your federal plan.

Check tsp.gov for current guidance, and ask your agency benefits specialist if anything is unclear. If a rule applies to you, the TSP will tell you directly, and it will explain how elections work.

What to do before it matters

A few practical moves are worth making this year.

  1. Pull your last W-2. Look at Box 3 and see whether you are near the threshold.
  2. Confirm your plan has a Roth option. If not, ask when it will.
  3. Rerun your take-home pay. A Roth catch-up lowers your net check more than a pretax one.
  4. Review your tax mix. If all of your retirement money sits in pretax accounts, the new rule may actually improve your balance.
  5. Revisit your plan. Withdrawal sequencing, Roth conversions, and bracket planning all look different with a growing Roth balance.

The rule is a tax-timing change, not a penalty. For some savers it will sting a bit in the paycheck and pay off decades later. For others it will quietly fix a lopsided account mix. Either way, it is better to meet it with a plan than with a surprise notice in January.