Roth Catch-Up Rule 2026: The Box 3 Test, Who Is Exempt, and the Cost

What the 2026 Roth Catch-Up Rule Says

Section 603 of the SECURE 2.0 Act added the rule to Section 414(v)(7) of the tax code. It was written to begin in 2024, the IRS gave plans a two-year administrative transition, and the final regulations issued in September 2025 left 2026 as the first year it applies. For 2026, plans are held to a reasonable, good-faith reading of the law. The detailed regulations apply from 2027 for most plans, but government plans can stay under the good-faith standard longer, because their start date is tied to the first regular session, beginning after 2025, of the legislative body that can amend the plan. The mechanics fit in five rules.

It applies to catch-ups only. For 2026, the base limit on employee deferrals is $24,500, and that amount can still go in pre-tax, Roth, or a mix, whatever a participant earns. The rule reaches only the age-50 catch-up of $8,000 and the larger $11,250 catch-up, widely called the super catch-up, for participants who reach age 60, 61, 62, or 63 during the year, which in 2026 means those born from 1963 through 1966. It covers 401(k), 403(b), and governmental 457(b) plans; SIMPLE IRAs and SEPs are outside it.

The test is last year’s Social Security wages. The final regulations measure wages as Social Security wages, the figure in Box 3 of the W-2. It is not the Medicare wage figure in Box 5, not adjusted gross income, and not household income. A spouse’s salary, investment income, and rental income do not count. Box 3 stops at the Social Security wage base ($176,100 for 2025), which is why it can show less than salary; because the base sits above the threshold, the cap never changes the answer. Deferrals to a 401(k), 403(b), or 457(b) do not lower Box 3, because they are still subject to Social Security tax, but pre-tax health premiums and other cafeteria-plan deductions do.

The threshold is $150,000, and it has to be exceeded. The statute set the threshold at $145,000, indexed for inflation, and IRS Notice 2025-67 set it at $150,000 for 2025 wages, which decide 2026 catch-ups. Box 3 wages of exactly $150,000 are not over the line. The threshold applied to 2026 wages, which will decide 2027 catch-ups, will be announced with next year’s limits.

It is measured one employer at a time. Only wages from the employer sponsoring the plan count, although a plan can choose to combine wages from related employers in the same controlled group or affiliated service group, or from employers that share a common paymaster. Wages are not annualized, so someone who joined an employer late in 2025 is tested on what that employer actually paid them.

No Roth option means no catch-up. The rule does not require plans to offer Roth contributions. A plan without a Roth option can still offer catch-ups, but only to participants under the threshold; everyone over it loses the catch-up entirely. Many plans now route affected participants’ catch-ups to Roth automatically, through what plan notices call a deemed Roth election, and a participant who opts out of that treatment gives up the catch-up rather than turning it back into a pre-tax contribution.

Who the Rule Misses

Because the test is Social Security wages from a single employer, several groups of well-paid savers fall outside it entirely.

The self-employed and partners. A sole proprietor or a partner earns self-employment income, not Social Security wages, so a partner with a large distributive share can keep making pre-tax catch-ups at any income. An S corporation owner is different: the salary the corporation pays is W-2 wages, so an owner-employee paid more than $150,000 is inside the rule.

Most Texas public school employees. Texas school districts are not required to participate in Social Security, and nearly all do not; a 2018 Teacher Retirement System study found that 96% of public school employees did not participate. Those employees’ W-2s show no Social Security wages in Box 3, so the rule does not reach them, whatever their salary. One caveat: while the good-faith standard applies, which is 2026 and possibly later for government plans like these, plans may use Medicare wages (Box 5) instead, and Box 5 does show wages for most of these employees. Anyone in this group whose plan is routing catch-ups to Roth should ask how the plan is applying the test this year. In a plan that applies the Box 3 test, a superintendent or senior administrator earning well above $150,000 in a district outside Social Security can keep making pre-tax catch-ups to a 403(b) or 457(b). Employees of the districts that do participate are covered like anyone else, and so are employees of Texas public universities, which cover their employees under Social Security whether they are in TRS or ORP. Some community college districts sit outside it, so faculty there should check Box 3 of their own W-2. Our article on TRS and ORP for Texas professors covers the plans themselves.

Special catch-ups for long-service and pre-retirement savers. Two older catch-ups sit outside the Roth rule. A 403(b) participant with 15 years of service at a qualifying employer, such as a public school, hospital, or church, may be able to add up to $3,000 a year on top of the regular limits, with a $15,000 lifetime cap, and only while past deferrals at that employer average less than $5,000 per year of service, which in practice rules it out for most people who have deferred the maximum for years. A governmental 457(b) participant in the three years before the plan’s normal retirement age may qualify for a larger special catch-up. It is limited to deferral room left unused in earlier years, and it can’t be stacked with the age-based catch-up: in those years the participant gets whichever is larger. If the age-based route is larger, only the amount above what the special catch-up alone would allow has to be Roth. Both special catch-ups can stay pre-tax. When a 403(b) participant uses both the 15-year catch-up and the age-based one, contributions count toward the 15-year catch-up first, and only the age-based amount above it has to be Roth.

A first year with a new employer. Someone who changes jobs has no prior-year wages from the new employer, so that year’s catch-up can be pre-tax whatever the pay. The rule applies from the following year if the first year’s wages exceed the threshold.

Earners just under the line. Because pre-tax health premiums and similar cafeteria-plan deductions come out of Box 3, a salary somewhat above $150,000 can still leave Box 3 at or below it.

What the Rule Actually Costs

The rule does not create a new tax. It moves the tax on the catch-up from retirement to today, and whether that costs anything depends on the gap between the rate the contribution would have saved now and the rate the money would have faced later.

Consider a Houston couple in which one spouse, age 61, earned $240,000 in wages in 2025 and earns the same in 2026, while the other has no wages. The working spouse defers the $24,500 base amount pre-tax and adds the $11,250 catch-up, which now has to be Roth. Their adjusted gross income is $215,500 instead of $204,250, and after the $32,200 standard deduction their taxable income is $183,300 instead of $172,050, inside the 22% bracket either way. The rule raises their 2026 federal tax by $2,475. If those dollars would have come out in retirement at 22%, the rule costs them essentially nothing over time. If they would have come out at 12%, it costs them the 10-point difference on that slice of savings. If they would have come out at 24% or more, which can happen for a surviving spouse filing single or a household with large required distributions, the Roth version comes out ahead. Texas has no state income tax on either end, so for a Texas household the comparison is purely federal.

The rule also changes less than it seems for households already using Roth. Suppose a household had been deferring $14,500 pre-tax and $10,000 as Roth, plus an $8,000 pre-tax catch-up, for $22,500 pre-tax and $10,000 Roth. Under the rule it can defer $22,500 pre-tax and $2,000 as Roth, plus the $8,000 Roth catch-up, and land on exactly the same $22,500 and $10,000. The general rule: a household that was already putting at least as much of its base deferral into Roth as its catch-up amount can hold its mix by moving that much of the base from Roth to pre-tax. A household using the mega backdoor Roth has Roth dollars flowing already, which makes the forced slice easier to absorb. For a household that was entirely pre-tax, which is common for high earners, the rule forces a Roth slice of $8,000 or $11,250 a year, and nothing in the base deferral can offset it.

There is also a cash-flow difference. Compared with the old pre-tax catch-up, the Houston couple’s take-home pay falls by the full $11,250 instead of $8,775, because the tax on the catch-up is paid now.

The Real Choice Now: Roth Catch-Up or Taxable Account

For someone the rule reaches, pre-tax is off the table for the catch-up. The live decision is whether to make it as Roth or to skip it and save the money in a taxable brokerage account instead. The current-year tax is identical either way, because a Roth contribution does not reduce taxable income: the same $11,250 of wages is taxed whether it goes into the Roth account or into the paycheck and then a brokerage account. What differs is everything after.

Suppose the $11,250 is invested for 14 years, from age 61 to 75, and earns 6% a year, with 2 points of that arriving as qualified dividends taxed at 15% each year and 4 points as price growth taxed at 15% when sold. The Roth grows to about $25,400, all of it tax-free when withdrawn as a qualified distribution. The taxable account grows to about $24,400 after the annual dividend tax and is worth about $23,100 after selling, about $2,400 behind. Even held until death, when heirs would receive a step-up in basis and owe no tax on the gains, the taxable account is about $1,000 behind. Over 20 years instead of 14, the gap on a sale widens to about $4,400. Holding the most tax-efficient investments in the taxable account, a question of asset location, can narrow the gap, but for long-term money it rarely closes it.

A Roth 401(k) or 403(b) also has features that soften the mandate. Since 2024, Roth balances in a workplace plan are not subject to required minimum distributions during the owner’s lifetime. They can later be rolled into a Roth IRA. And the first Roth dollar starts the plan’s five-year clock for qualified distributions, so a 61-year-old whose first Roth contribution goes in during 2026 would have tax-free access to earnings from 2031; a later rollover to a Roth IRA follows the Roth IRA’s own clock. For a saver who had never used the plan’s Roth option, the rule starts that clock without any extra decision.

The main reasons a household might skip the catch-up are needing the money before 59½, wanting the flexibility of a taxable account, or simply having saved enough. One worry that usually does not apply is the employer match. A match formula generally counts Roth and pre-tax deferrals the same way; what SECURE 2.0 changed is whether the employer’s own matching contribution can be deposited as Roth. Whether catch-up dollars earn a match at all depends on the plan’s formula, Roth or not.

The AGI Ripple

A pre-tax catch-up lowered adjusted gross income; a Roth catch-up does not. Every threshold keyed to AGI or modified AGI notices the difference, and in the years just before Medicare that can matter more than the bracket.

Medicare surcharges at 63. Medicare premium surcharges look back two years, so income at 63 sets premiums at 65. Consider a couple who are both 63 in 2026. One earns $230,000 of wages, and they have $15,000 of other income. With a pre-tax catch-up, their modified AGI would have been $209,250; with the $11,250 Roth catch-up, it is $220,500, above the first 2026 surcharge threshold of $218,000 for a married couple. If those 2026 figures held for their 2028 premiums, crossing that line would cost the two of them about $2,300 in higher Part B and Part D premiums. The thresholds that apply will be adjusted for inflation by then, and if the working spouse has retired, a work stoppage is one of the life-changing events that lets a household ask Social Security to use a more recent, lower year’s income instead. Our IRMAA article covers both.

The net investment income tax. The 3.8% tax on investment income applies above $250,000 of modified AGI for a married couple ($200,000 single), and those thresholds are not indexed. A Roth catch-up keeps up to $11,250 more in MAGI, which can expose up to about $430 more of tax.

The senior deduction for workers 65 and older. A worker 65 or older who is still making the age-50 catch-up and whose income sits inside the senior deduction’s phaseout, which runs through 2028, loses 6 cents of deduction per dollar of MAGI as a single filer, or 12 cents for a couple where both spouses qualify. An $8,000 Roth catch-up therefore costs $480 or $960 of deduction compared with a pre-tax one.

The SALT phase-down. Above $505,000 of MAGI, a household that pays more state and local tax than the shrinking cap allows loses 30 cents of deduction per dollar, and a Roth catch-up keeps that dollar in MAGI too. The phase-down starts at $505,000, but it only costs a household anything once the shrinking cap falls below what it actually pays, which for most Texas households happens well above that line, as our article on the Texas SALT cap explains.

For Business Owners

For owners, the entity decides whether the rule applies. A sole proprietor, and a partner in a partnership or an LLC taxed as one, has self-employment income rather than Social Security wages and stays outside the rule at any income. An S corporation or C corporation owner who works in the business is paid W-2 wages, so an owner-employee whose prior-year Social Security wages from the company exceeded $150,000 must make catch-ups as Roth, including in a solo 401(k) the corporation sponsors. Health insurance premiums the corporation pays for a more-than-2% shareholder appear in Box 1 of the W-2 but not in Box 3, so they do not count toward the threshold. Our comparison of solo 401(k), SEP, and cash balance plans covers how those plans fit different entities.

For an S corporation owner whose salary sits near the line, the salary now carries one more consequence: a salary that leaves Box 3 at $150,000 keeps next year’s catch-up pre-tax, and one that puts Box 3 at $160,000 makes it Roth. That is a small consequence next to payroll tax, the employer contribution the salary supports, and the qualified business income deduction, which our article on reasonable compensation walks through. An owner’s salary has to reflect reasonable compensation for the work performed, and the tax treatment of a catch-up is not a reason to set it anywhere else.

How We Think About It

We lean toward treating the Roth catch-up rule as a change in where part of a household’s savings lands, not a reason to save less. For money that would be saved anyway, a Roth catch-up usually beats the taxable account that is now its real alternative, and a household already putting part of its base deferral into Roth can often keep its overall pre-tax and Roth mix exactly where it was. That mix, modeled against the rates the household expects to face in retirement, is still the decision that matters. We don’t lean toward Roth for everything for high earners, and the mandate doesn’t change that; it removes the choice for one slice of the savings.

We lean toward judging a forced Roth catch-up by more than the bracket. Because it stays in AGI, a Roth catch-up in the years just before Medicare, or near the investment income tax, senior deduction, or SALT thresholds, can cost more through those side effects than through the rate itself, and those effects belong in the multi-year projection. Liquidity belongs in the same conversation: a Roth catch-up takes more out of each paycheck than the old pre-tax version did, and money inside the plan is harder to reach before 59½ than money in a taxable account, so a household that may need the dollars sooner can reasonably weigh that flexibility against the Roth’s tax advantages.

And for business owners, we lean toward treating the rule as one small input to salary and entity decisions, never a reason to set salary away from reasonable compensation.

Common Questions

Who has to make Roth catch-up contributions in 2026?

Workers 50 or older whose 2025 Social Security wages (Box 3 of the W-2, not household income or adjusted gross income) from the employer sponsoring their 401(k), 403(b), or governmental 457(b) exceeded $150,000. For them, the $8,000 catch-up, or $11,250 at ages 60 to 63, must go in as Roth. The $24,500 base deferral can still be pre-tax. If the plan has no Roth option, they cannot make catch-up contributions at all.

Do Texas teachers have to make Roth catch-up contributions?

Usually not. The rule uses Social Security wages, and nearly all Texas school districts sit outside Social Security, so their employees have no wages in Box 3 of the W-2, whatever they earn. The wrinkle is the good-faith standard, which applies in 2026 and possibly later for government plans like these: under it, a plan may use Medicare wages instead, and those do appear on these employees’ W-2s, so it is worth asking how the plan applies the test. Employees of the few districts that participate in Social Security, and of Texas public universities, are covered if their Box 3 wages exceeded $150,000. The 403(b) 15-year catch-up and the governmental 457(b) special catch-up can stay pre-tax either way.

Is it still worth making catch-up contributions if they have to be Roth?

Usually, for money the household would save anyway. The current-year tax is the same whether the money goes into a Roth catch-up or a taxable account, and the Roth grows without the annual tax drag a taxable account carries and has no required distributions during the owner’s life, so it generally comes out ahead. The main reasons to skip it are needing the money before 59½ or preferring the flexibility of a taxable account, and the effect on adjusted gross income is worth checking before deciding.

Does the Roth catch-up rule apply to self-employed people and solo 401(k)s?

Not to sole proprietors or partners, because self-employment income is not Social Security wages; they can make pre-tax catch-ups at any income. It does apply to an S corporation owner whose W-2 salary from the corporation exceeded $150,000 in the prior year, including in a solo 401(k) the corporation sponsors.