At 63 She Took a Job Paying Over $150,000. The Catch-Up Rule Checked a Paycheck That Didn’t Exist.
The same paycheck can make a worker invisible to one retirement rule and dangerously visible to another. A 63-year-old with a six-figure salary just discovered how both can hit at once.
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At 63, a woman leaves a long career at a nonprofit and starts a genuinely new job at a private company. The role pays slightly more than $150,000, and the company offers a 401(k). She has read about the new Roth catch-up rule and expects her age-based contribution to be forced into a Roth account. That would mean losing the upfront deduction she wanted during one of her final high-earning years.
Her new 401(k) looks backward and sees something unexpected: zero. Social Security looks at the year unfolding and reaches the opposite conclusion.
Why Her New Employer Sees No Prior Wages
Beginning in 2026, workers whose prior-year FICA wages exceeded $150,000 generally must make age-based catch-up contributions on a Roth basis. The key phrase is not simply “prior-year wages.” It is prior-year FICA wages from the employer sponsoring the current plan.
This woman did not work for the private company in 2025. Her W-2 wages from that employer were zero, even if she earned more than $150,000 at the nonprofit. For purposes of the new company’s Roth catch-up test, the relevant paycheck does not exist. That means she may still be allowed to make her 2026 catch-up contribution on a pre-tax basis if the plan offers that option. Her current salary does not control the first-year result. The rule looks backward. It also looks at the employer, not merely the employee.
Why Age 63 Makes the Number Larger
The standard employee contribution limit for most 401(k) plans is $24,500 in 2026. Workers 50 and older ordinarily receive an $8,000 catch-up. A special rule raises the catch-up limit to $11,250 for employees who turn 60, 61, 62 or 63 during the year. At 63, she could potentially contribute as much as $35,750 between the standard deferral and the larger catch-up.
That makes the Roth-versus-pre-tax distinction meaningful. A pre-tax contribution can lower her current federal taxable income during a high-salary year. A Roth contribution provides no deduction today but can produce qualified tax-free withdrawals later. Her first year at the company may preserve that choice. After a full year earning more than the threshold from this employer, her following year’s catch-up would generally have to be Roth.
Social Security Uses a Different Paycheck
Now suppose she claimed Social Security at 62. Because she remains below full retirement age, the retirement earnings test applies. In 2026, Social Security withholds $1 in benefits for every $2 earned above $24,480 for someone below that milestone throughout the year. If she earns $150,000, she is $125,520 above the limit, producing $62,760 in calculated withholding. For most retirees, that would be enough to withhold every Social Security check for the year.
Her pre-tax 401(k) contribution generally does not rescue those checks. Elective deferrals may lower federal taxable wages, but they ordinarily remain part of the Social Security wages reported in Box 3 of Form W-2. The earnings test therefore sees wages that her income-tax return may treat differently. One retirement rule looks at last year’s wages from a particular employer. The other looks at what she is earning now.
The Withheld Checks Are Not Simply Lost
Benefit withholding under the earnings test is temporary. When she reaches full retirement age (FRA), Social Security recalculates her monthly benefit to account for the months in which checks were withheld. That does not make the current-year cash-flow problem disappear.
If she expected salary and Social Security to arrive together, she may need to rebuild the budget around salary alone. She should also tell Social Security about the new earnings estimate promptly instead of waiting for the agency to reconcile her W-2 later. The new job may eventually improve her benefit if its covered earnings replace a lower year in her 35-year record. Returning to work can therefore interrupt checks today while increasing the monthly amount later.
Before She Makes the First Contribution
Three questions belong in her onboarding meeting:
- Does the plan permit both pre-tax and Roth catch-up contributions?
- How will it treat a new hire with no prior-year FICA wages from this employer?
- Has Social Security received an updated estimate of her 2026 earnings?
Her 401(k) looked backward and found no paycheck. Social Security looked at the year in front of her and found a $150,000 job. The same worker can appear to earn zero under one retirement rule and far too much under another.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
