The Internal Revenue Service publishes next year's retirement limits in the next few days, and the headline will be the usual one: the amounts go up slightly. Underneath it is a change that has been three years in the making and takes effect for the first time in 2027. If you are 50 or older and your wages last year were above a certain line, your catch up contribution can no longer be made before tax. It has to go in as Roth, which means you pay the tax on it now.

What Actually Changes

A catch up contribution is the extra amount people aged 50 and over may put into a workplace plan on top of the ordinary limit. This year that extra is $8,000, and for the narrow band aged 60 to 63 it is $11,250, against a standard deferral limit of $24,500.

Until now you could choose whether that extra went in before tax or as Roth. From 2027, for anyone over the wage threshold, the choice is gone. The final regulations were issued in September of last year and apply to tax years beginning after December 31, 2026. This year and last were a transition on a good faith basis. Next year is the first one that counts.

The Box That Decides It

Here is the part that catches people, and it is more specific than it sounds.

The test is not your income, not your adjusted gross income and not your tax return. It is the Social Security wages your employer reported for you in the previous calendar year, the figure in Box 3 of your W-2, and only from the employer sponsoring the plan. For 2026 that line is $150,000, measured against your 2025 wages. The 2027 figure comes with the notice landing this week.

Three consequences follow from that wording. Self employment income does not count, so a partner with no W-2 wages from the plan sponsor is not covered at all. A new employer starts you fresh, because wages from a previous one do not carry. And two jobs are measured separately rather than added together.

The Case Nobody Warns You About

A plan is not required to add a Roth option. If your plan has no Roth feature and you are over the threshold, the plan may simply stop you from making catch up contributions at all, while colleagues under the threshold carry on making them.

That is not an error and there is no appeal. It is a legitimate plan design, and the only way to find out is to ask.

Final Take

Three things are worth doing before December, and the first takes two minutes.

Pull last year's W-2 and look at Box 3, not Box 1. If that number is anywhere near $150,000, assume you are covered and plan accordingly.

Ask your plan administrator two direct questions: does the plan offer a Roth source, and will it allow catch up contributions from employees above the threshold. If the answer to the first is no, the answer to the second may also be no, and you would rather know in December than in March.

And think about which side of the trade you are on. Losing the deduction on $8,000 costs a 24% bracket taxpayer about $1,920 in tax this year. In exchange that money and everything it earns comes out untaxed later. For someone who expects a lower bracket in retirement that is a worse deal. For someone with a large traditional balance already facing required distributions, it is quietly a better one.

Written by Deniss Slinkins
Millionaire Core