WEALTH BRIEF: ROTH EVOLUTION

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SECURE 2.0: The Final Approach to 2026

By Rob Eklund | Wings & Wealth

EXECUTIVE SUMMARY

Picture your retirement strategy as a flight plan — and 2026 as the point on the horizon where Roth rules fully take shape.

The SECURE 2.0 Act, signed in late 2022, has already made small course corrections: Roth 401(k)s are now free from RMDs, and employer contributions can be made as Roth.
But the real turbulence — and opportunity — begins January 1, 2026, when higher earners will be required to make catch-up contributions in Roth form.

This isn’t a revolution. It’s a recalibration of how tax deferral, Roth growth, and long-term planning interact.
Let’s chart what’s already airborne, what’s still on the tarmac, and how to prepare your 2025–2026 strategy before the autopilot takes over.

I. THE 2026 MANDATE: MANDATORY ROTH CATCH-UPS

Beginning in 2026, any employee aged 50 or older earning more than $145,000 (indexed annually — likely around $160,000 by 2026) must make catch-up contributions on a Roth basis.
No exceptions.

That means:

·       You’ll pay income tax on those contributions now.

·       The growth and withdrawals will be tax-free later.

·       Employer systems must be Roth-capable or the catch-up feature disappears altogether.

Why it matters:
For years, catch-ups were a stealth tax deferral — a way for late-career earners to push more into pre-tax savings. That lever is disappearing for high-income earners. The change is designed to raise tax revenue today while pushing savers toward tax diversification.

Action:
Confirm that your plan sponsor or administrator has upgraded systems to handle Roth catch-ups.
If not, your ability to make any catch-up contributions could be temporarily suspended.

II. ROTH CATCH-UPS: WHAT THIS REALLY CHANGES

For high-income earners, the 2026 rule forces a shift from “Should I use Roth?” to “I have no choice but to.”

This creates three planning implications:

1.     Cash Flow Adjustment:
Because Roth catch-ups are after-tax, your take-home pay will drop slightly unless you reduce contribution amounts or rebalance elsewhere.

2.     Tax Diversification Benefit:
The good news: you’ll automatically begin building a Roth layer in your portfolio — a tax-free reserve that could smooth future withdrawals or provide legacy flexibility.

3.     Behavioral Reset:
Most investors treat deferrals as static. When that defaults to Roth, you’ll be pre-paying taxes in your highest income years — making it critical to model your effective rate and timing.

III. THE 2024–2025 RUNWAY

Not all provisions of SECURE 2.0 are waiting until 2026. Several features are already live, forming the foundation for next year’s transition:

·       Roth 401(k)/403(b) RMDs Eliminated (2024):
Roth balances in employer plans now enjoy the same treatment as Roth IRAs — no lifetime withdrawals required. This change removes a long-standing reason to roll plan Roths into IRAs at retirement.

·       Optional Roth Employer Contributions:
Employers can now offer Roth matching or nonelective contributions, if plans allow. These are taxable immediately but grow tax-free thereafter.

·       Roth SEP & SIMPLE IRAs:
Small-business owners and self-employed professionals now have access to Roth contributions through these simplified plans.

Together, these changes create a Roth-friendly environment leading up to 2026.
Think of 2024–2025 as the systems check phase before the main event.

IV. TAX-RATE FORECASTING — THE 2026 DECISION TREE

Whether Roth helps or hurts depends on one key variable: your tax rate now versus later.

If you expect higher rates ahead — from income growth, TCJA expirations, or potential legislation — paying tax now through Roth can make sense.
If you expect lower rates in early retirement or from relocation to a low-tax state, pre-tax traditional contributions still hold value.

In practice, both can work together. The smartest strategies build tax flexibility — balancing pre-tax and after-tax assets so you can choose which bucket to tap based on future conditions.

V. ASSET LOCATION — PREPARING FOR A MORE ROTH-HEAVY FUTURE

As Roth assets occupy a growing share of retirement plans (by mandate or design), investors should adjust their asset placement accordingly:

·       Roth accounts: best for higher-growth assets (equities, small-cap, or high-beta holdings).

·       Traditional accounts: suited to income-producing or lower-volatility assets (bonds, REITs).

·       Taxable accounts: for liquid assets benefiting from capital-gain or step-up treatment.

This approach maximizes tax-free growth while managing volatility and withdrawal sequencing risk.

VI. WHEN TO ROTH — AND WHEN NOT TO

Academic research confirms that Roth and traditional accounts are roughly equivalent if your current and future tax rates are identical. But in real life, few people’s rates stay constant.
The difference compounds dramatically over time — especially under new legislation.

When Roth Makes Sense

·       You’re early in your career and expect higher lifetime income.

·       You’ll likely face higher tax rates later (due to policy or income).

·       You want tax-free flexibility for heirs and estate planning.

·       You’re already maxing traditional options and want tax diversification.

When Traditional Still Wins

·       You’re in your top-earning years and prefer the deduction today.

·       You plan to execute Roth conversions during early-retirement “gap years.”

·       You’ll move to a lower-tax jurisdiction in retirement.

·       You want to manage Medicare or Social Security taxation thresholds.

“Roth 401(k)s become more attractive when expected future tax rates exceed current ones.”
— U.S. Government Accountability Office, 2023

VII. ADVANCED PLANNING OPPORTUNITIES

Roth Conversions — Using Low-Income Years to Your Advantage
A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. You pay income tax on the amount converted that year, but once in the Roth, the assets grow and can be withdrawn tax-free later.

The real power of conversion lies in managing lifetime taxes, not short-term performance.

When It Makes Sense

The best time to convert is during lower-income years—for example, after you stop working but before Social Security or RMDs begin. During that period, your taxable income may be far below what it will be later, creating room to convert part of your traditional balance at a modest rate.

By deliberately filling the lower brackets (say, up to the 22% level), you prepay tax now at a controlled rate and reduce the size of future RMDs that would otherwise be taxed at higher rates.

How to Approach It

1.     Estimate your total taxable income for the year.

2.     Identify where the next tax bracket begins.

3.     Convert only enough to stay within the current bracket.

Example: if you have $80,000 of room before reaching the next bracket, you might convert $80,000 from a traditional IRA to a Roth. You’ll pay taxes this year, but you’ve permanently shifted those assets into a tax-free account.

Why It Helps

·       Future withdrawals from the Roth won’t trigger RMDs.

·       Smaller RMDs later can lower Medicare IRMAA surcharges.

·       Heirs receive tax-free assets that can continue growing for up to ten additional years.

What to Watch

·       Exceeding IRMAA thresholds can raise future Medicare premiums.

·       Conversions increase your adjusted gross income, which can reduce certain credits or deductions.

·       State tax treatment varies—factor it in before converting.

The Bottom Line

Roth conversions let you control when you recognize income. Using the years between work and full retirement—often an overlooked low-tax window—can significantly reduce lifetime taxes and add long-term flexibility. It’s less about reacting to tax law and more about piloting your own tax trajectory.

529-to-Roth Rollovers — Turning Tuition into Tax-Free Retirement

Beginning in 2024, SECURE 2.0 allows up to $35,000 lifetime of unused 529 plan assets to be rolled into a Roth IRA for the same beneficiary — effectively recycling leftover education funds into long-term retirement savings.

This is not a loophole; it’s a slow, carefully designed bridge from college funding to compounding. Here’s how it works:

·       15-Year Rule: The 529 account must have been open for at least 15 years before any rollover.

·       Recent Contributions Block: Any funds (including earnings) added in the last five years are ineligible to roll.

·       Beneficiary Must Match: The Roth IRA owner must be the same person listed as the 529 beneficiary.

·       Annual Limits Apply: Rollovers count toward annual Roth IRA contribution limits (currently $7,000 in 2024).

·       Lifetime Cap: The total rollover cannot exceed $35,000 per beneficiary over time.

Example:
A parent opened a 529 in 2008 for their daughter. After she graduates, $30,000 remains unused. Starting in 2024, she can begin rolling $7,000 per year (the annual IRA limit) into her own Roth IRA until she reaches the $35,000 lifetime cap.
If she invests that $35,000 at 7% annual growth, it could compound to roughly $137,000 tax-free by age 65 — all from repurposed college savings.

Key takeaway: This is one of the most tax-efficient intergenerational transitions ever legislated — but it’s a slow burn, not a lump-sum rollover. Plan ahead and confirm your 529’s age and contribution history before initiating.

Roth Employer Matches:
If offered, consider electing Roth matching contributions before 2026 — it can serve as a tax-free “test run” ahead of the mandatory catch-up rule. Remember that Roth matches are taxable in the year made, so budget for the increased W-2 income.

Legacy Optimization:
Inherited Roth IRAs must be emptied within 10 years, but growth during that decade remains tax-free.

A Roth left to a 35-year-old heir, for instance, could nearly double under moderate growth assumptions before the required distribution deadline. Roths remain among the most tax-efficient wealth-transfer tools available — especially when integrated with trusts.

Roth vs. Traditional: Two Simple Scenarios
Inherited These examples illustrate how future tax rates drive which contribution type may work better.
Assume $6,000 annual contributions for 30 years, earning 7% annually.

Scenario 1: Lower Future Taxes (Traditional Wins)

·       Current Tax Rate: 32%

·       Retirement Tax Rate: 22%

Traditional contributions avoid 32% taxes today and are withdrawn later at 22%.
After 30 years, the $6,000 contributions grow to ≈$567,000 pre-tax.
After paying 22% tax on withdrawal, you keep ≈$442,000.

If those same dollars were Roth contributions, you’d first lose 32% to taxes, so only $4,080 per year gets invested. That grows to ≈$385,000 tax-free.

Result: The Traditional approach wins by roughly $57,000 because your tax rate dropped in retirement.

Scenario 2: Higher Future Taxes (Roth Wins)

·       Current Tax Rate: 22%

·       Retirement Tax Rate: 32%

Here, the $6,000 Roth contribution is taxed at 22% now, leaving $4,680 invested annually.
After 30 years, that grows to ≈$442,000 tax-free.

Meanwhile, the full $6,000 Traditional contribution compounds to ≈$567,000, but after paying 32% in retirement taxes, the net is ≈$386,000.

Result: The Roth wins by about $56,000, simply because you prepaid taxes at a lower rate.

The Lesson

There’s no one-size-fits-all answer.
Roth and Traditional are two sides of the same flight path — the difference is when you pay the toll. The right choice depends on your expected trajectory: future tax brackets, relocation plans, and income timing.

VIII. MISSION PLAN: 2025–2026

    Model tax scenarios: project lifetime rates and bracket thresholds.

    Rebalance for growth: stocks in Roth, bonds in traditional.

    Adjust cash flow and withholdings to account for after-tax contributions.

    Sync with estate plan: optimize beneficiary structure.

    Stay informed: legislation and IRS guidance continue to evolve.

IX. KEY TAKEAWAYS

·       2026 marks a pivotal shift: Roth contributions move from optional to unavoidable for many high earners.

·       Roth accounts offer long-term flexibility but require upfront tax planning.

·       Traditional accounts remain powerful tools for income smoothing and deduction efficiency.

·       The best approach isn’t choosing one over the other — it’s balancing both to control your future tax rate. Consider diversifying across tax buckets to handle future uncertainty.

·       Use 2024 and 2025 as your practice years to test Roth settings before the mandatory changes take effect.

At Wings & Wealth, we believe the goal isn’t to guess where the smoothest ride will be — it’s to be prepared for the full journey.

That completes your briefing — wishing you good returns!

— Rob Eklund

Plan, Save, Invest, Live