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Retired Military Finances 301: New "Catch-up" Rules Go into Effect in 2026 Thumbnail

Retired Military Finances 301: New "Catch-up" Rules Go into Effect in 2026

Retirement Funding Taxes

The SECURE 2.0 Act made some changes that helped taxpayers keep more of their money. The Congress didn't want you to keep too much of your money, so SECURE 2.0 also took some of your money. One of the ways they're going to take some of your money is through your catch-up contributions to a 401(k), TSP, 403(b) or similar plans starting in 2026. Actually, the law change was supposed to go into effect in 2024, but the IRS decided to treat 2024 and 2025 as an administrative transition period. So, what changed?

Certain Taxpayers Can Only Make Roth Catch-up Contributions

Starting in 2026, if your income exceeds a certain threshold, you can only make Roth catch-up contributions. More specifically, if your FICA wages (pretty much everything your employer pays you) for the preceding year from the employer sponsoring the plan exceed a specified threshold, any catch up contributions made by the employee to the plan, generally must be designated Roth contributions.

A few things to note here.

  • It is FICA wages from the employer sponsoring the plan
    • So, if you have more than one employer and you exceed the FICA wage limit but not at the employer offering the plan, the limit doesn't apply
    • If you change jobs in a year and your FICA wages at that employer don't exceed the limit, next year you can still make pre-tax contributions even if your income exceeds the plan
  • The threshold for 2026 hasn't been set yet. For 2025 it would have been $145,000

How Big of a Deal are the Changes to Catch-up Contributions?

This is kind of a "it depends" situation. The current catch-up limit is $7,500. Someone with FICA wages just over the threshold would pay an additional $1,650 in taxes due to the catch-up contributions now being after-tax. For someone with a lot of income, the tax increase could be around $2,775. And don't forget State taxes which could add $300+ to the tax bill.

You'll want to double-check withholding in 2026, if this situation applies to you.

What Do I Do About the Catch-up Contributions Changes?

I suspect you'll start seeing paperwork from your plan's administrator later this year (2025) informing you of this requirement and whether it applies to you. The IRS did put a lot of the responsibility for this on the plan sponsor. But that doesn't mean you can just wait for the change to happen. Trust...but verify.

Military Finances are Different

This new tax rule applies to all taxpayers. But that isn't always the case. As an Active or Retired Senior Military Officer or NCO, you have unique tax benefits available to you. You also have unique sources of income and benefits your civilian counterparts don't have. That is why we think you should work with a financial planner or advisor that works with Active and Retired Military Members each and every day. If you'd like to find out how we work with people just like you, use the button below to schedule a free, initial consultation.

If you found this article useful, you might like the following blog posts:

Retired Military Finances 101: First In; Last Out


Military Finances 101: Another New Tax Form!


Retired Military Finances 301: I Inherited Mom's (or Dad's) IRA. How do I Minimize my Tax Bill?






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