IRS Changes to Catch-Up Contributions: What High Net Worth Investors Need to Know

IRS Changes to Catch-Up Contributions: What High Net Worth Investors Need to Know

September 19, 2023

In the ever-evolving landscape of taxation and retirement planning, the Internal Revenue Service (IRS) regularly updates its rules and regulations. Recently, the IRS announced changes to catch-up contributions, postponing the implementation of a rule that Congress approved last year as part of the Secure 2.0 Act. Specifically, the IRS is delaying the mandatory Roth catch-up provision until 2026.

The recent announcement has caused quite a media stir with all major financial news outlets covering the change. However, what does this actually mean for you as an investor? And how might it impact your situation if you are over or nearing age 50 with Social Security wages exceeding $145,000?

Here is what families need to know about the delayed implementation of section 603 of the SECURE 2.0 Act passed in December 2022. 

Quick Overview of Section 603 of the SECURE 2.0 Act

All the rules and regulations can be hard to follow and keep up with when it comes to the IRS. So, let’s first take a step back and look at what rule was passed in December 2022.

Under the Secure 2.0 Act, a new catch-up contribution rule was enacted that would require higher-income earners to put their catch-up contributions in after-tax accounts subject to Roth rules. Meaning investors would need to pay taxes on their contributions at the time of deposit.

The rule also specifically applied to individuals earning $145,000 or more from a single employer making catch-up contributions into either a 401(k), 403(b), or 457(b) retirement plan.

Full guidance from the IRS can be found here: Guidance on Section 603 of the SECURE 2.0 Act with Respect to Catch-Up Contributions (

What Does it Mean for Investors?

In essence, the rule simply changes when investors experience their tax benefit for making contributions. While investors traditionally experience a current-year tax break when they contribute to these retirement plans because it reduces their taxable income, this new rule would mean individuals would not pay taxes on these funds when they begin taking distributions in retirement.

How Does the Delay in Implementation Affect Current Investors?

In all reality, the announcement of the delay doesn’t impact current savers all that much because nothing has changed yet. Since the IRS requires more time to implement the policy change, investors can continue to make pretax catch-up contributions until 2026. Effective January 1, 2026, the new policy should take effect.

Why Catch-Up Contributions? 4 Reasons Why High-Earning Professionals Leverage Them

While the recent news cycle means very little impact to current savers, all the attention to catch-up contributions lends itself to a more meaningful discussion of the role these catch-up contributions can play in your overall retirement savings.

Here is why catch-up contributions may make sense for certain investors.

Maximized Retirement Savings:

High-net-worth investors often face greater tax burdens. Catch-up contributions may allow you to funnel more money into tax-advantaged retirement accounts, potentially reducing your taxable income in the process. This is true in a pre-tax or post-tax environment.

Objectively, we could posit that tax rates tend to go up and they are likely to be higher in the future than they are right now. So not paying taxes on retirement income at withdrawal can offer a benefit not realized until then.

Tax Diversification:

Speaking of taxes, having tax diversification among your retirement assets is never a bad thing. In fact, having some retirement savings that will be taxed upon withdrawal and other funds that will not be taxed can make cash flow management in retirement that much more comfortable.

You can strategically convert traditional retirement account balances, including catch-up contributions, into Roth accounts. This strategy can help diversify retirement income sources, as Roth distributions are typically tax-free, reducing future tax liabilities.

For this reason, investors may want to consider working with their financial advisor to conduct in-plan Roth conversions.  For illustrative purposes, say you want to make a large purchase in retirement, tax-free funds from a Roth vehicle can make much more sense than needing to cover the taxes on a large withdrawal from a Traditional vehicle.

Enhanced Healthcare Savings:

Another reason why you may elect to make catch-up contributions is to bolster your healthcare savings if you participate in an HSA (health savings account).

The rules are a little different with HSA accounts, but savers can make catch-up contributions into their HSAs starting at age 55.  For up-to-date rules and limits for HSA accounts, you can visit the IRS website for details. As of 2023, the catch-up contribution limit was $1,000 for individuals aged 55 and older.

The coordination of catch-up contributions between HSAs and 401(k)s can allow you to increase both retirement and healthcare savings simultaneously. This feature can be particularly advantageous for covering healthcare expenses in retirement, where costs tend to be higher.

Tailored Financial Strategies:

Given the financial complexity that often exists with high-earning professionals, it can be incredibly helpful to work closely with a financial advisor who can create customized retirement and tax strategies that leverage the latest IRS changes to maximize wealth preservation and growth.

The financial landscape has many moving parts and changes are always seemingly around the corner. Trying to keep track of all the details while also knowing how to best take advantage of them for your personal situation takes relentless attention. 


The recent and ongoing IRS updates to catch-up contributions present investors with changing opportunities. By staying informed in general and collaborating with a tax-wise financial advisor, managing financial complexities can feel easier as you benefit from a financial strategy that has the potential to help you secure a prosperous retirement.

Maximized retirement savings, tax diversification, and enhanced healthcare savings are just a few of the potential ways catch-up contributions can be used as a financial planning tool that fits into the broader picture of your financial life.



This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.