If you are over 50 years of age and counting on the catch-up provision to stash more pre-tax funds toward retirement, here’s some bad news: You’ve just lost the tax deduction on these contributions.

Under a delayed-till-now provision of the SECURE 2.0 Act, first passed in 2022 as an enhancement to the 2019 SECURE Act, the law now allows workers 50 and over to make higher catch-up contributions than in previous years: up to an additional $8,000 if you are 50 to 59 or 64 and older; up to $11,250 if you are 60 to 63.

BUT there’s a catch for earners making over $150,000 annually: These catch-up contributions are no longer made with pre-tax money and they cannot be added to your 401(k). Instead, they are made with after-tax income and must be deposited into a Roth IRA.

As a result, you will feel the hit in your paycheck, with less take-home pay, thanks to more of your income exposed to taxes.

Note: There’s a quirky exception to this rule. Because your contribution treatment depends on your prior year income with your current employer, those who switched employers in the new year may be able to make pre-tax contributions without the Roth because they technically they had no income with their current employer in 2025.

KEY DIFFERENCES BETWEEN THE TRADITIONAL AND ROTH IRAS

As a quick refresher, here are the key differences between a Traditional and Roth IRA” • With a traditional IRA, your annual contribution is made with pre-tax income, lowering your annual tax bill.

• With a Roth IRA, you make contributions with after-tax income, so you’ll pay higher taxes. • Funds in your traditional IRA grow tax-deferred. • Funds in your Roth IRA grow tax-free. • At retirement, you will pay ordinary income taxes on the full amount you withdraw from your traditional IRA. • But with the Roth, your qualified withdrawals are 100 percent tax-free. • Traditional IRAs require you to take “Required Minimum Distributions” (RMDs) at a certain age. • With a Roth IRA, there is no RMD. You never have to take any distributions if you don’t want to.

This isn’t meant to be a comprehensive list of the features, requirements, and benefits of IRAS, whether traditional or Roth. For more information about these two retirement savings vehicles, talk to your DMK Advisor Group Representative, or reach out to us at info@dmkadvisorgroup.com.

THE IMPACT OF THIS NEW PROVISION ON EMPLOYERS AND FINANCIAL INSITUTITIONS

This new requirement under the SECURE Act has had a sweeping – and at times, complicated – implications for both employers and the financial institutions that administer retirement programs such as a 401(k), 403(b), or 457(b). That’s why implementation of this part of the law was delayed by two years to ensure both employers and financial institutions were fully compliant when the provision to effect. Since the rule is triggered when employees surpass the $150,000 income threshold, employers and the financial institutions administering retirement accounts have had to work closely together to ensure they know which employees are impacted and that they effectively manage both where to place employees’ funds and how to handle payroll taxation.

One challenge for employers is that if they fail to make the Roth option available to all eligible employees, then no one in the company – even those making less than $150,000 annually – will be allowed to make catch-up provisions.

Because many employer-sponsored plans didn’t previously offer a Roth option, they have had to make plan amendments to make sure businesses can continue to provide the catch-up option to their higher-earning workers.

To ensure that these catch-up contributions are handled properly – and seamlessly – many employers are including a “deemed Roth election” provision in their plan documents. Under this provision if an employer’s payroll system shows an employee earned over $150,000 in 2025, then any catch-up funds made in 2026 will be “deemed” to be Roth contributions and automatically deposited accordingly.

WHAT YOU NEED TO DO

In theory, it is your employer’s responsibility to manage how your contributions are taxed and where catch-up contributions are deposited. So, you probably won’t have to do anything.

But you should still log into your employer’s – or your employer’s plan administrator’s – web portal to check your catch-up provision status. You might need to confirm that your catch-up election is active. Note: If you can’t elect the catch-up provision, that’s a strong indicator your employer has not made the Roth available through its plan.

Depending on your tax bracket, the difference in your paycheck may be slight. But in case you need to find more tax breaks – say, to keep your income below a higher tax bracket – then you may need to find other deductions, such as a Health Savings Account (HAS), to offset the loss.