What changed, and for whom
Until this year, anyone aged 50 or over could choose whether their catch-up contribution went in pre-tax or as Roth. For higher earners that choice is gone. If your Social Security wages from the employer sponsoring your plan exceeded the threshold in the previous year, the catch-up has to be Roth.
The amount does not change. What changes is where the money comes from: after-tax pay rather than pre-tax, so the deduction goes and the growth comes out untaxed instead. Our Roth catch-up mandate calculator prices that trade for a specific salary and filing status.
Four details that decide it
Each of these is a way to reach a confident wrong answer, and none of them is visible in the dollar figure.
- It looks at last year. Your previous year’s wages govern this year’s treatment. A raise now does not change this year, and a drop does not rescue it. The test runs again every year, against the year before.
- It uses Box 3, not your salary. Box 3 is Social Security wages, which stop at the wage base, so anyone earning well above it has a Box 3 figure lower than their pay. It is not Box 1 either: pre-tax deferrals reduce Box 1 and leave Box 3 alone. Reading the wrong box is the commonest error here.
- It counts one employer at a time. Only wages from the employer sponsoring your plan. Changing jobs resets the test, so a high earner who started somewhere new is usually outside the rule in their first year there.
- Some plans are outside it. SEP plans and SIMPLE IRAs are excluded whatever you earned. A SIMPLE 401(k) is not, and both are called a SIMPLE plan in ordinary speech.
The outcome worth checking first
If the rule reaches you and your plan offers no Roth option, you cannot make catch-up contributions at all. Not pre-tax, because the rule forbids it. Not Roth, because there is nowhere to put it. That is covered in when your plan has no Roth option, and it is worth settling before December rather than after payroll rejects the election.
If you are not sure what a catch-up contribution is in the first place, start with catch-up contributions, explained.