Do you have clients age 50 (or older) making more than $145,000 per year?

If you advise clients age 50 and older who earn more than $145,000 a year, there’s a major change on the horizon that will affect their retirement savings strategy!

Starting January 1, 2026, the IRS and Department of Labor will require all catch-up contributions for high-wage earners to be made as Roth contributions inside employer-sponsored retirement plans.

This change stems from the SECURE 2.0 Act, and while the intent is to increase Roth participation, it also creates planning challenges for advisers and clients.

Key Details of the Rule

• Who is affected: Clients whose W-2 wages from the prior year exceed $145,000 (indexed for inflation).

• What’s changing: Catch-up contributions for these clients (currently $7,500 in 2025, with additional increases at ages 60–63 under SECURE 2.0) must be Roth!

• Employer plan requirements: If the plan does not offer a Roth option, high-earning employees will lose the ability to make catch-up contributions entirely until a Roth feature is added.

• Effective date: January 1, 2026, with required plan amendments due by December 31, 2026.

Why This Matters for Your Clients

1. Immediate tax impact
   Clients will lose the upfront deduction they’ve historically counted on. For those in the highest brackets, this could increase their tax bill significantly.

2. Long-term opportunity
   The flip side is Roth’s appeal — tax-free growth and tax-free withdrawals in retirement. For clients who expect to remain in a high bracket or who value tax diversification, Roth catch-ups could be advantageous.

3. Plan design risks
   Not all employer plans currently have Roth features. If your client’s plan doesn’t, they will miss out on catch-up opportunities altogether until the sponsor makes changes.

Action Steps for Advisers

• Audit client income levels: Identify clients age 50+ whose wages exceed the $145,000 threshold and segment them for targeted planning conversations.

• Review plan design: Verify whether the client’s plan allows Roth contributions. If not, encourage your clients to advocate for plan updates with their HR or benefits department.

• Model tax scenarios: Prepare side-by-side projections comparing pre-tax and Roth contributions, highlighting the near-term tax impact versus long-term benefits.

• Incorporate tax strategies: Offset the loss of current deductions by considering charitable giving, tax-loss harvesting, or adjusting other income strategies.

• Educate early: Clients should not be surprised when their take-home pay feels smaller. Advance communication is critical to maintain confidence and trust.

Bottom Line

The new Roth catch-up requirement is more than just a technical update — it fundamentally changes how high-earning clients approaching retirement will save.

By planning now, you can help clients navigate the near-term tax impact, preserve their savings momentum, and turn this regulatory change into a long-term advantage.

Advisers who proactively address this change will not only strengthen client relationships but also demonstrate their value in helping clients adapt to a shifting retirement landscape!

Reviewing with your clients that will be affected by this now is a great way to get referrals!

Trust me, you want to be the first one bringing up this change to your client. You don’t want them finding out after their first paycheck next year wondering why you didn’t tell them about this!

Just a little tip from the ERISA Nerd!