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 cost her the upfront deduction she was counting on during one of her last 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. Both systems are reading the same worker. They are just looking at different paychecks.
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. That rule, a product of the SECURE 2.0 Act, took effect after the IRS published final regulations on September 16, 2025. The key phrase in those regulations 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, regardless of what she earned at the nonprofit. For purposes of the new company’s Roth catch-up test, the relevant paycheck does not exist. Employees with no prior-year FICA wages from the plan sponsor are not subject to the mandatory Roth requirement. That means she may still make her 2026 catch-up contribution on a pre-tax basis, provided the plan offers that option. Her current salary is irrelevant to the first-year result. The rule looks backward, and it looks at the employer, not merely the employee.
It is also worth noting that 2026 is a good-faith compliance year. Plan administrators are expected to follow the rule reasonably; full strict adherence to every nuance in the final regulations does not begin until 2027. That gives both employers and employees some runway to get the classification right.
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 receive an $8,000 catch-up on top of that. A special provision introduced by SECURE 2.0 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 combining the standard deferral and the larger catch-up. That said, the super catch-up is optional for plan sponsors: an employer must affirmatively offer it, so she should confirm her new plan has adopted the provision.
The Roth-versus-pre-tax distinction is what makes all of this consequential. A pre-tax contribution reduces her current federal taxable income during a high-salary year, a meaningful benefit in the upper brackets. A Roth contribution skips that deduction but allows qualified withdrawals in retirement to come out tax-free. Her first year at the company may preserve that pre-tax choice. Once she has worked a full calendar year earning above the $150,000 FICA threshold from this employer, however, her following year’s catch-up would generally be required 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 who stays below full retirement age the entire year. At $150,000 in wages, she sits $125,520 above that threshold, producing $62,760 in calculated withholding. For most early claimers, that figure is large enough to suspend every check for the year.
Her pre-tax 401(k) contribution does not rescue those checks. Elective deferrals reduce 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 the full wage figure even when her income-tax return reflects a lower number. One retirement rule consults last year’s wages from a particular employer. The other looks squarely at what she is earning right 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 credit back the months when checks were withheld. For those born in 1960 or later, FRA is 67. The money does not come back as a lump sum; instead, it raises the monthly payment going forward. That future credit does not solve the immediate cash-flow problem, but it does mean the withheld amounts are not forfeited permanently.
If she had counted on salary and Social Security arriving together, she will need to rebuild her budget around salary alone for the near term. She should also notify Social Security of her new earnings estimate promptly rather than waiting for the agency to reconcile her W-2 after the year closes. Beyond the withholding issue, the new job may actually strengthen her eventual benefit: if the $150,000-plus salary replaces a lower-earning year among the 35 years used in Social Security’s benefit calculation, returning to work can suppress checks today while lifting 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. Getting both answers right before the first paycheck clears is far easier than untangling them afterward.
Editor’s note: This article was updated to reflect the IRS final SECURE 2.0 Roth catch-up regulations published September 16, 2025, the 2026 good-faith compliance period that precedes full strict enforcement in 2027, and confirmation that the age 60 to 63 super catch-up is an optional feature that plan sponsors must affirmatively adopt. The 2026 Social Security earnings test threshold of $24,480 and the full retirement age of 67 for those born in 1960 or later were also confirmed against current SSA data.
Contact [email protected] for any questions or corrections.
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.
