Editor’s Note: A longer version of this article appears on Forbes.com.

A common decision many people face when contributing to their retirement accounts is whether to use a traditional or Roth account. The SECURE 2.0 Act redefined retirement saving by raising catchup contribution limits and mandatory withdrawal ages. 

However, it also introduced a wrinkle that will now require some taxpayers to contribute on a Roth basis using their after-tax funds. That shift has meaningful implications for how taxpayers plan and save for retirement.

Traditional Vs. Roth Retirement Contributions

Upon saving money for retirement, most Americans choose whether their contributions will be made via a traditional vs. Roth account. This seemingly simple choice may not appear consequential, but it can actually have a significant tax impact, according to Forbes.

Under the traditional retirement account, contributions are made on a pre-tax basis. That means the money comes out of their earnings before taxes are taken, with taxes assessed after retirement, when earnings are withdrawn.

Under the Roth retirement account, contributors fund their account on an after-tax basis. This means taxpayers first pay taxes on their earnings, and then they contribute those after-tax earnings to their account. The silver lining to the Roth approach is that contributors can withdraw money from the account without paying taxes.

To help illustrate the differences, consider a taxpayer in a marginal tax bracket of 22% who wishes to save $100 for retirement. With a traditional retirement account, this taxpayer will contribute $100 and pay no taxes on the contributions. Meanwhile, if the taxpayer were to make a Roth contribution, the taxpayer would first pay $22 in taxes on this income and only contribute $78 to retirement.

The benefit of a Roth ultimately lies in the fact that the distributions are made without paying taxes. Thus, if that $78 grows to $200, the gains can be withdrawn tax-free. With a traditional contribution fund, a $100 initial contribution that grows to $250 would be taxed at the saver’s individual income tax rate at retirement. Their tax bracket at that time largely determines whether they were better off saving for retirement using a traditional or Roth account.

That’s just one of many considerations for choosing between Roth and traditional retirement savings options. Others include upcoming tax law changes, how much income the taxpayer can put into retirement, and state tax laws.

The SECURE 2.0 Act And Retirement Contributions

The SECURE 2.0 Act was signed into law on Dec. 29, 2022. It includes many retirement-related provisions, including higher catchup contribution allowances, later ages for required minimum distributions, employer matches for contributions to Roth accounts and automatic enrollment in retirement plans, among other provisions.

With respect to the catchup contribution changes: Starting Jan. 1, 2025, individuals aged 60 and older could make additional contributions to their retirement accounts of $11,250. However, a key aspect of this legislation was the requirement that high-income taxpayers (those earning more than $145,000) make catchup contributions using the Roth basis (i.e., after-tax), rather than the traditional pre-tax basis.

The Internal Revenue Service has released final regulations clarifying SECURE 2.0 Act rule changes, including setting the active date for the new catchup contribution rules at Dec. 31, 2026. Thus, for the time being, retirement contributors do not need to tussle with any changes to their retirement contributions. 

Other changes under these final regulations include setting higher catchup limits for Savings Incentive Match Plan for Employees (SIMPLE) plans under certain conditions. The final regulations also correct guidance for plan administrators aggregating wages from certain common law employers when determining whether they meet the high-income Roth catchup requirement.

Starting in 2027, later-career contributors will need to consider their retirement contributions more carefully. While the taxpayers are still permitted to make their normal contributions using either the traditional or Roth basis (up to $23,500 in 2025), the additional $7,500 catchup contribution will have to be made on a Roth basis if the taxpayer makes over $145,000. That means a significantly higher number of taxpayers will be turning to Roth retirement accounts.

As these taxpayers make more money, they will necessarily benefit less from the Roth’s after-tax advantage than lower-income peers who can choose between traditional or Roth. These issues might compound among contributors aged 60 to 63, who will be able to make larger catchup contributions.

Retirement savings are important and complex. On the whole, the SECURE 2.0 Act seems to advance taxpayers’ goals by enhancing their ability to save for retirement. And by requiring some higher-income individuals to make post-tax Roth contributions, it promotes equity among taxpayers.

This post was originally published in Poole Thought Leadership.