IRS Finalizes Rules for Mandatory Roth Catch-Up Contributions

One of the provisions passed into law as part of SECURE Act 2.0 (December 2022)  requires that “catch-up” contributions made by higher-paid employees must go into a Roth account. This provision affects qualified retirement plans such as 401(k), 403(b) and 457 plans and the Thrift Savings Plan (TSP). The Roth contribution requirement was originally due to take effect on January 1, 2024. But the IRS delayed the effective implementation date until January 1, 2026. The IRS issued final regulations on September 15, 2025, and the IRS confirmed that all qualified retirement plans and the TSP must comply with this provision as of January 1, 2026.

Roth TSP contributions are deducted from an employee’s after-taxed salary. When Roth TSP contributions together with accrued earnings in the Roth account are withdrawn after a Roth TSP participant is age 59.5 (through what is called a “qualified distribution”) there are no federal and state income tax liabilities. On the other hand, with  traditional TSP, TSP contributions are deducted from an employee’s before-taxed salary. When traditional TSP contributions are withdrawn together with accrued earnings in the traditional TSP account, the withdrawal is fully federal and state taxable.

This mandatory Roth TSP “catch-up” contribution requirement means that higher-earning federal employees (defined below) will pay federal and state income taxes on their “catch-up” contributions during their high-earning years instead of paying taxes on their contributions and accrued earnings in retirement when many retirees are in a lower marginal tax bracket compared to their marginal bracket when they contributed to the TSP. Note that this is the first time in history that the Internal Revenue Code is mandating Roth account savings. Perhaps Congress’ intent to force Roth account savings rather than traditional account savings is to give the federal government its share of taxes up-front via after-tax payroll deduction rather than having to wait until later to get the tax revenue when the traditional account is withdrawn in retirement.

The Roth TSP mandatory “catch-up” rule applies to federal employees age 50 through 59 and older than 63 who make regular catch-up contributions ($7,500 during 2025) and the “super” catch-up contributions of $11,250 in 2025 that apply to employees age 60, 61, 62 and 63 during the year.

For 2026, the regular catch-up limit is estimated to be $8,000 and regular contribution limit (elective deferral limit) is estimated to be $24,500. The “super” catch-up limit of $11,250 is expected to stay the same.

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Which Employees Eligible for Making “Catch-Up” Contributions are Affected by the Roth Catch-up Rule?

The Roth “catch-up” contribution rule affects those employees whose wages from the employer sponsoring the retirement plan in the preceding year exceed a dollar threshold of FICA (Social Security) wages (as shown in Box 3 of an employee’s annual W-2 statement). The threshold is indexed for inflation.  The threshold  of $145,000 of 2024 FICA wages would have applied had the Roth catch-up rule been in effect in 2025. The threshold of 2025 FICA wages for determining required Roth catch-up contributions for 2026 will not be published by the IRS until sometime in late October or November 2025.

Note that since the wage limit looks back to the previous year at the same employer, new employees could get a free pass from mandatory Roth contributions in the first and second year of employment.

What Happens if a Private Company Does Not Offer a Roth Option?

Not all private companies offering qualified retirement plans to their employees offer a Roth option. The IRS does not require an employer to offer a Roth option. The IRS has issued rules that if a private company does not offer a Roth option to its existing traditional (before-tax) 401(k), 403(b) or 457 retirement plans, then starting January 1, 2026 a high wage earner will not be allowed to make any catch-up contribution. When the older higher-paid employees get shut out of catch-up contributions, more private retirement plans who do not offer the Roth option should hopefully start offering the Roth option.

Are There Benefits Associated with the Roth TSP?

Studies have shown that employees with access to a qualified retirement plan prefer the upfront tax deduction that is associated with a traditional account such as the traditional TSP. For example, ninety-six percent of participants in Vanguard managed retirement plans are offered a Roth option, but only 18 percent of participants use the Roth option.[1]

While the mandatory Roth TSP catch-up rule looks somewhat “harsh” for some high-earning federal employees, mandatory Roth Catch-up contributions could be beneficial. It is true that these high wage earners are paying full federal and state income taxes on their contributions. However, the tax-free compounded growth could reduce  federal and state income taxes due in retirement. For federal retirees, the additional funds going into the Roth TSP and less into traditional TSP will most likely decrease TSP requirement minimum distributions (RMDs). This has been the case since January 1,2024 when the Roth TSP account was no longer included in the calculation of the TSP RMD.

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Roth 401(k) plans are long-term retirement savings vehicles. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you’re eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP. RMD’s are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

[1] Vanguard, How America Saves 2024

Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert

A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.

He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.