14 Oct 2025 Catching Up on The Catch-Up
Over the past few weeks, the “Other Things You Might Find Interesting…” section of our Friday Brief email has been littered with articles about the retirement plan catch-up rules taking effect next year. So numerous have the mentions been that many of you, nay, nearly all of you, have probably asked yourself, “When are they going to write about this?!” Well, today is the day! So settle in, grab a cup of coffee, and enjoy.
Age 50+ Catch-Up Contributions
For those of you over the age of 50, you know that the IRS allows extra deferrals, called “catch-up contributions,” into your 401(k) or 403(b). The amount changes from year-to-year due to inflation, but this year a plan participant over the age of 50 can contribute $7,500 on top of the normal $23,500 limit. That’s right: anyone between the ages of 50-59 (Why the cut-off at 59, you ask? We’ll get there…) enrolled in a 401(k) plan can contribute as much as $31,000. This rule has been around since 2002 without much change . . . until now.
Due to The SECURE Act 2.0, passed at the end of 2022, beginning in 2026, “Highly-Compensated Employees” (HCE) can still make catch-up contributions, but only in Roth dollars. You read that correctly: no more tax-deferred catching-up. Now, I bet most of you reading this won’t consider yourself highly-compensated, but the IRS might: Anyone earning more than $160,000 (in 2024) is deemed Highly Compensated.
Let me answer a few common questions:
How does the HCE thing work? The IRS is relying on your employer. The 2026 HCE amount is expected to stay the same, so if this year’s earnings exceed $160K, you will be considered an HCE next year. Your employer will communicate that to your 401(k) plan provider, and (I’m guessing here because I haven’t seen one yet) only a Roth catch-up contribution option will be shown on your 401(k) portal.
What if I change jobs? Great question! If you change employers, the HCE rules won’t apply to you because the IRS doesn’t expect your new employer to call your old employer to ask how much you earned. This presents a fun planning opportunity. Here’s what I mean: If you switch jobs in July having earned a quintillion dollars in your previous position, you can make pre-tax catch-up contributions for the rest of the year at your new place of employment. Then, if your July-December earnings at your new job are less than the HCE limit (an all-time pay cut), you’re (expected to be) able to choose which kind of catch-up contribution you want to make in year two (your first full year), even if year two earnings will exceed it. I told you it was fun.
I’m an HCE. Is it still wise to make catch-up contributions? In short: yes. If your financial plan has you contributing the max, keep on catching-up. Everything else being equal, a dollar invested in a Roth account is better than a dollar invested in an after-tax account.
So that’s a summary of what will change going into 2026. Let’s talk a bit about what changed at the start of this year.
The “Super Catch-Up”
Another part of The SECURE ACT 2.0 was an additional catch-up (often called the “Super Catch-Up”) that took effect on January 1st, 2025. Going forward, you can contribute even more beginning in the year you turn 60 through the year in which you turn 63; Contributions then revert to the normal catch-up. How much extra will change each year, but for 2025 it’s an additional $3,750, for a total Super Catch-Up amount of $11,250. If you find yourself in this age range, be sure to check your retirement plan contribution amount to be sure you’re taking advantage of the increased limits.
So that’s what’s going on with the catch-up. If you find yourself turning 50 this year or next, are in the 60-63 window, or are an HCE and want to discuss a contribution strategy for next year, please reach out to your advisor at Beacon Wealthcare. If you’re not yet a client, you can click here to schedule a complimentary inquiry call or here to meet our team.
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