The desk interprets the upcoming change mandated by the SECURE 2.0 Act, which will require high earners to make catch-up contributions on a Roth basis starting in 2026. Per the full note source, this shift is significant as contributions will be taxed at the point of deposit rather than at retirement, influencing both immediate cash flow and long-term investment strategies. This regulatory change could enhance after-tax returns for applicable accounts, compelling advisors to adjust their retirement planning strategies to optimize tax implications for clients. Institutional traders should monitor how shifts in savings behaviors might affect overall market liquidity leading up to 2026.
What the desk is arguing
The desk frames this regulatory shift as a pivotal moment for high earners in terms of tax planning and retirement contributions. With catch-up contributions being taxed at the time of deposit, this alteration could impact both how individuals manage liquidity and how they project their tax liabilities in the long run.
The SECURE 2.0 Act aims to enhance retirement savings for Americans, and the change specifically targets higher income participants in employer-sponsored retirement plans. The implications of these changes could lead to increased demand for Roth accounts, potentially altering investment flows over the coming years.
Where it sits in our coverage
Given that there is no active internal FX coverage on related currency pairs, we currently lack specific target ranges and consensus forecasts related to this aspect.
How other firms see it
As we are not tracking any per-firm forecasts directly related to currency pairs connected with this legislative change, this section will be omitted.
What the calendar says
With no significant economic events or regulatory timelines looming in the next 30 days that relate directly to this commentary, this section is also omitted.
Key takeaways
01SECURE 2.0 Act requires high earners to make Roth catch-up contributions starting in 2026.
02Contributions will be taxed upon entry, affecting long-term investment strategies.
03This regulatory change may alter liquidity dynamics in retirement-related investments.
04Advisors must adapt strategies for optimization of tax implications for clients.
Market implications
As high earners adjust their financial strategies in light of this regulatory change, traders should keep an eye on shifts in investment flows related to Roth accounts. Additionally, the trend could affect market liquidity and engage more investors with higher-risk appetites, influencing asset valuations.
Risks to this view
Should there be delays in the implementation of the SECURE 2.0 Act or unexpected changes in tax legislation, the anticipated shifts in retirement savings contributions could reverse, impacting projected liquidity improvements and altering market dynamics significantly.
ubs
Hi everyone, Dan Cassidy here. Welcome back to the UBS Conversations podcast channel. Today we are focusing on an important retirement savings change taking effect in 2026.
This is part of the Secure 2.0 Act. For certain high-wage earners, catch-up contributions will be required to be made on a Roth basis, meaning they'll be taxed at the time of contribution rather than at withdrawal. Now on today's episode, we will be discussing what's changing, why this matters, and what to do about it.
Joining me today for that conversation, glad to welcome back for their first appearance in 2026, Ainsley Carbone, retirement strategist, as well as Justin Waring, head of UBS Wealthway Strategy and Solutions. And today's conversation will be referencing the recent piece, 2026 Roth Catch-Up Explained, which is now available up on UBS.com slash CIO. So with that, let's dive right into it.
To set the stage, let's maybe begin with the basics. Now before we get into what's changing, Ainsley, can you explain to our listeners what catch-up contributions are and why they exist? Absolutely.
And thanks so much for having us, Dan. So catch-up contributions are exactly what they sound like. They're designed to help people catch up on their retirement savings as they get closer to retirement.
For most workplace retirement plans, like a 401K, the annual contribution limit in 2026 is $24,500. If you are under age 50, that's generally the most that you can put into pre-tax and or Roth contributions combined. Once you reach age 50 or older, the IRS allows you to make extra contributions on top of that base amount.
So in 2026, that catch-up amount is $8,000 for a total of $32,500. Employers also have the option, but they're not required, to allow for a super catch-up contribution of $11,250, which would make a total of $35,750 for employees who are aged 60 to 63 by the end of the calendar year. So a lot of us spend our younger years juggling competing priorities like childcare, mortgages, or maybe paying off student loans.
And unfortunately, retirement savings just doesn't always get the attention that it deserves early on in our lives. So once you reach age 50, this rule gives you this additional opportunity to catch up if you haven't been able to save as much as you wanted earlier in your career. So it's essentially designed to help people boost their retirement savings during what's often their peak earning years.
So now that we have that helpful background in terms of what catch-up contributions are, and thank you for that, Ainsley, I'd just like to welcome you into the conversation. What exactly is changing in 2026, and who will these changes apply to? Thanks for having us, Dan.
Well, so starting in 2026, this change, which is from the Secure 2.0 Act, will affect how catch-up contributions are taxed for some savers. So for an employee who's age 50 and older, whose prior year wages from the current employer were above $150,000, this is the population where the catch-up contributions in 2026 will have to be made on a Roth basis, meaning taxes will be paid now rather than later. And this affects that $8,000 amount, or if you're between ages 60 and 63 and your employer allows it, you might have that super catch-up of $11,250.
So it's really just those dollars that are affected by this. If your wages are below $150,000 for the previous year, then you still have the choice to make up catch-up contributions on a traditional pre-tax basis or as a Roth contribution, depending on what your plan allows. But for those who are subject to this rule, there's an important operational point to keep in mind.
The retirement plan does have to offer a Roth option. So if the plan doesn't offer a Roth option for contributions, then high-wage earners at that company may lose the ability to make catch-up contributions at all until the plan adds a Roth feature. So investors should think about, are they subject to mandatory Roth catch-up contributions as well as what are the details of their plan?
And the best way to learn that is to go to the employer or the plan provider to read the information. Okay, so Justin, quite a few considerations there. Thank you for breaking that down for us.
So now that we've set the foundation, Ainsley, let's talk about why this shift might be beneficial in some cases. What's the trade-off between paying taxes today versus down the road? Yeah, so it really comes down to when taxes are paid.
So with traditional pre-tax contributions, taxable income is reduced by the amount of the contribution that year, and ordinary income taxes are paid on the amounts distributed in retirement. With Roth contributions, there's no deduction up front, but qualified withdrawals, including any investment growth on those contributions, are tax-free in retirement. This new rule does force some people to contribute on a Roth basis, meaning they are paying more in taxes than they otherwise would today if they were doing pre-tax contributions, but adding more Roth dollars to a balance sheet can potentially be beneficial for some families because it helps them enhance their tax diversification.
So by having a mix of both pre-tax and Roth dollars, families may have a little bit more control over how much taxable income they have in a given year in retirement because it gives them the ability to decide which dollars they pull from. So yes, there is a trade-off because the employee doesn't get the upfront tax deduction on those mandatory Roth contributions, but ultimately this may be beneficial because this may give them more flexibility in managing their tax burden in retirement. Okay, that's helpful clarity in terms of the pros and cons.
Now understanding the tax treatment is one piece of the puzzle, but it's also important to consider how this fits into someone's financial plan. So Justin, what factors should someone consider when thinking about their overall savings plan under this new rule? Well, the most important thing is for families to look at their full retirement picture over time and keep that big picture in mind.
So first it's important to consider how much the employee is contributing versus the 2026 limits. Then the employee can think about their current tax bracket and their estimated tax bracket in retirement, as well as their current level of tax diversification. So that's having a good mix of pre-tax, taxable, and Roth dollars on a family's balance sheet.
Tax diversification can help the family smooth their tax burden over time and hopefully move income from high-tax years to low-tax years. It's crucial that employees review what their specific plan allows because not every employer allows Roth contributions or catch-up contributions, and this change is a good opportunity for employers and families to take the time to review their plan's rules and work with their financial advisor and their tax advisor to decide what makes the most sense for their unique situation. And I will mention we have published a series called the Savings Waterfall, and the purpose of our Savings Waterfall report is to highlight which different types of accounts a family may want to prioritize based on the after-tax growth potential of the account type.
So looking at different accounts like 401ks, health savings accounts, 529 accounts, taxable accounts, and trying to prioritize it so that we save in the most tax-efficient and after-tax growth-efficient portfolios over time. I will also mention we have a Spending Waterfall report that talks about managing taxes in retirement, and the overarching goal of the Spending Waterfall philosophy is to balance our taxable income over the course of our lives so that we stay out of higher tax brackets, but also take an opportunity to fill up lower tax brackets in the years that we have the ability to do so. And so this change to the catch-up contribution does add one more wrinkle into that overarching process, but many families will find that the ultimate goal of their savings and distribution strategy is going to be to smooth taxable income over as many years as possible and to look for opportunities to take taxable income from high-tax years to low-tax years, and that includes the early years of retirement when we no longer are collecting our salaries, but we haven't yet started to take required minimum distributions from our IRAs, and we haven't yet started to take income from Social Security or annuities that are deferred.
And so that window of opportunity, those early retirement years before we have to take RMDs, we call those the gap years. Those can be a great opportunity to do tax management strategies and to right-size our Roth accounts and things like that. So I do think that that's really important as a framework for managing this change in the context of a family's overall financial plan.
Well, Justin, that's very helpful guidance and we definitely encourage our clients listening in if you are interested in learning more about those spending and savings report series, please get in touch with your UBS financial advisor directly. So as we wrap up today's conversation, let's address a question many listeners may still have after hearing about these changes. So a bottom line for listeners, Ainsley, some people may be wondering whether it still makes sense to make catch-up contributions under these new rules.
What's the takeaway? Yeah, so I definitely understand why some people may be thinking that. You know, they're working hard to set aside their savings to save for their future self.
They want to make these catch-up contributions. They're saving an additional amount, and now all of a sudden some of them may be taxed on those dollars. Well, it's understanding why they would think that this change in tax treatment might change the value of those contributions, but catch-up contributions, regardless of the tax treatment on them, may still be beneficial because it allows the employee to set more dollars aside for their future self.
For some families, adding more tax exempt or Roth dollars to the balance sheet can be beneficial because it may help them enhance their tax diversification, which may give them a little more control over managing their tax burden in retirement. But of course, that might not be the case for every single individual or every single family. It's important to first make sure the employee understands the distinction between the different tax treatments because this will just help make sure that the plan participants better interpret how changes like this fit into their overall retirement strategy.
So the takeaway for listeners is to understand the tax treatments, understand the limits, take the time to revisit their tax situation, and to work with their financial advisor to make sure they're making an intentional choice that's going to fit into their long-term financial plan. Well, Ainsley, Justin, as always, great catching up with you both. Very timely and productive conversation today.
So I thank you again for dropping by UBS Conversations and for spending some time today with our listeners and clients. Thank you, Dan. Thanks for having us.
And again today, Ainsley and Justin have been referencing the recent piece, 2026 Roth Catch-Up Explained, which is available now for you up on ubs.com slash CIO, though for clients of UBS, simply reach out to your UBS financial advisor if you would like a copy of the piece provided to you directly. From UBS Studios, I'm Dan Cassidy. Thank you for joining us.
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