Are 401k Catch-Up Contributions Pre-Tax?

Workplace retirement plans like the 401(k) are a primary tool for long-term savings, offering tax advantages that help accelerate growth. As savers get closer to retirement, specific provisions in the tax code allow them to increase their savings rate. These rules provide an opportunity to bolster account balances during the final years of a career, which often coincide with peak earning years.

Understanding 401(k) Catch-Up Contributions

Catch-up contributions are additional amounts that individuals can contribute to their 401(k) plans above the standard annual deferral limit set by the Internal Revenue Service (IRS). The primary eligibility requirement is age; an individual must be, or will be, age 50 by the end of the calendar year to qualify. This provision is designed to help those nearing retirement increase their savings.

For 2025, the standard employee contribution limit to a 401(k) is $23,500. The catch-up contribution allows an eligible individual to contribute an additional $7,500, bringing their total potential contribution to $31,000. An employee must first reach the standard limit before any additional contributions are classified as catch-up amounts.

A provision introduced by the SECURE 2.0 Act created a higher catch-up limit for a specific age group. Beginning in 2025, individuals who are ages 60, 61, 62, or 63 can make an enhanced catch-up contribution. For 2025, this higher limit is set at $11,250, meaning a person in this age bracket could contribute a total of $34,750, provided their employer’s plan permits this higher amount.

Participation in catch-up contributions is contingent on the employer’s plan document. While the law permits these extra contributions, employers are not required to offer them. If the plan does allow for them, it must make them available to all eligible employees. The plan administrator and payroll provider handle the administration of these contributions.

Tax Treatment of Standard Catch-Up Contributions

The tax treatment of 401(k) catch-up contributions directly mirrors the tax structure of an employee’s regular contributions. The choice between pre-tax and post-tax contributions depends on the options available within the specific 401(k) plan. This alignment ensures a consistent tax strategy for an individual’s retirement savings.

For most savers, catch-up contributions can be made on a pre-tax basis as traditional contributions. When an employee elects this option, the contribution amount is deducted from their gross pay before federal and most state income taxes are calculated. This action reduces the employee’s current taxable income for the year. The funds, including any investment earnings, then grow tax-deferred and are taxed as ordinary income upon withdrawal in retirement.

Many 401(k) plans also offer a Roth option, which allows for post-tax contributions. If an employee chooses this path for their catch-up contributions, the funds are deducted from their paycheck after income taxes have been taken out. While this provides no immediate tax deduction, qualified withdrawals of both the contributions and their earnings are completely tax-free in retirement.

The decision between pre-tax and Roth catch-up contributions depends on an individual’s financial situation and their expectation of future tax rates. A person who believes they will be in a higher tax bracket in retirement may prefer the Roth option to lock in today’s tax rates. Conversely, someone seeking to lower their current taxable income might opt for the traditional pre-tax contribution.

The Roth Catch-Up Requirement for High-Income Earners

A rule change from the SECURE 2.0 Act alters the tax treatment of catch-up contributions for a particular group of employees. This provision creates a mandate that applies only to high-income earners. Beginning in 2026, these individuals will be required to make any catch-up contributions on a Roth (post-tax) basis.

The rule affects employees whose prior-year wages from their current employer exceed a certain threshold. The threshold is defined as having Federal Insurance Contributions Act (FICA) wages of more than $145,000 in the preceding calendar year. This wage amount is indexed for inflation. To determine eligibility for 2026, an employee would look at their 2025 FICA wages as reported on their Form W-2.

This mandate is contingent on the employer’s 401(k) plan offering a Roth contribution feature. If a high-income earner is in a plan that permits catch-up contributions but does not have a Roth option, that employee is prohibited from making any catch-up contributions at all. This provision effectively forces plan sponsors who want to offer catch-up contributions to high-income employees to add a Roth feature.

This rule only applies to catch-up contributions, which are the amounts contributed above the standard deferral limit. High-income earners are still permitted to make their regular 401(k) contributions up to the standard limit ($23,500 in 2025) on a pre-tax basis. The rule isolates only the additional catch-up amount for this mandatory Roth treatment.