The 2026 Roth Catch-Up Rule Hits Workers Over $145,000: 4 ETFs to Make the Most of It
Starting January 1, 2026, workers who earned more than $145,000 in FICA wages (Social Security wages, Box 3 of Form W-2) from their employer in the prior year can no longer make pre-tax catch-up contributions to their 401(k) or similar plan. Under Section 603 of the SECURE 2.0 Act, those contributions must now be designated as Roth. The change is mandatory, not elective. Plan administrators are required to enforce it, and plans that have not yet updated their systems may suspend catch-up contributions entirely for affected employees in the meantime.
This is the biggest structural change to catch-up contributions since their introduction in 2001. The rule is grounded in IRC Section 414(v), and the Treasury and the IRS issued final regulations in September 2024 to guide plan administrators in its implementation. The threshold is also indexed, meaning it will adjust over time.
The $145,000 threshold is based on prior-year Box 3 wages, not Box 5 or total compensation, so an employee who received a large bonus in 2025 but has lower base pay in 2026 could still be subject to the rule even if their current income has dropped. The IRS looks backward, not at current income.
Workers who expect higher tax rates in retirement benefit from paying taxes now through Roth treatment. Those who expect lower rates in retirement, because of pension income, required minimum distributions, or a high Social Security benefit, are now paying taxes earlier on money they would have preferred to defer. For that second group, especially, where the dollars go inside the Roth account matters considerably.
Forced Roth treatment means catch-up contributions grow and are withdrawn tax-free. That structural advantage is most powerful when the underlying investments generate strong long-term compounding. The four ETFs below reflect different angles on capturing that compounding within a Roth account.
Vanguard Growth ETF: The Core Position
Vanguard Growth ETF (NYSEARCA:VUG) is the natural anchor for Roth catch-up dollars because it combines tax efficiency with broad exposure to companies most likely to generate compounding returns over the long term. The fund tracks the CRSP U.S. Large Cap Growth Index and holds 151 companies screened for growth characteristics across earnings, sales, book value, and return on assets.
The fund carries share class assets of approximately $187 billion and a newly reduced expense ratio of 0.03%, the lowest in the large-cap growth category. At that cost level, almost nothing is lost to fees over a 10- or 15-year compounding window.
Information technology accounts for about 52% of the fund, with communication services and consumer discretionary adding significantly to the fund’s growth-heavy tilt. The top holdings include the largest U.S. technology and platform companies, giving the fund deep exposure to businesses with durable free cash flow and pricing power.
The top two holdings alone account for roughly 25% of the portfolio, a concentration that has increased alongside the rise of mega-cap AI leaders. A prolonged period of underperformance in mega-cap technology would weigh heavily on results. For investors with a time horizon of at least a decade, that concentration is typically manageable, but it is a real risk in shorter windows.
Schwab U.S. Large-Cap Growth ETF: A Broader Growth Lens
Schwab U.S. Large-Cap Growth ETF (NYSEARCA:SCHG) tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market Index, which uses a different methodology than VUG’s CRSP benchmark. The result is a portfolio of 196 companies with greater financial and industrial exposure alongside the dominant technology weighting, providing investors with a marginally more diversified growth allocation.
The fund holds approximately $50.5 billion in assets and maintains a competitive expense ratio of 0.04%. Since Vanguard recently lowered VUG’s fee to 0.03%, the cost difference remains negligible over any reasonable time horizon, making the choice between the two a matter of index methodology rather than fees.
SCHG allocates about 45% to information technology, with financials at roughly 7.1% and industrials at 6.6%, sectors that VUG’s narrower screen largely minimizes. That inclusion means SCHG captures growth-oriented financial companies and industrial compounders that VUG’s methodology often filters out. Investors who want large-cap growth without the near-total exclusion of financials will find SCHG provides a slightly wider net.
The top holdings are still dominated by a handful of mega-cap names. The top two positions represent roughly 22% of the portfolio, which is somewhat less concentrated than VUG but still reflects a meaningfully top-heavy structure. The two funds will tend to move together in most market environments, though SCHG offers slightly lower volatility due to its broader base.
Invesco NASDAQ 100 ETF: The Higher-Conviction Technology Bet
Invesco NASDAQ 100 ETF (NASDAQ:QQQM) is the retail-oriented share class of the well-known QQQ structure, designed with a lower expense ratio than its institutional sibling to suit long-term buy-and-hold investors. It tracks the Nasdaq-100 Index, which holds the 100 largest non-financial companies listed on the Nasdaq exchange.
The Nasdaq-100 deliberately excludes financials, making the fund a concentrated expression of innovation in technology, consumer internet, and healthcare. Information technology and communication services together account for roughly 65% of the portfolio. This is a higher-conviction technology bet than either VUG or SCHG, which cast a broader net across growth sectors.
QQQM carries approximately $70.7 billion in assets and an expense ratio of 0.15%, higher than VUG and SCHG but still low in absolute terms. The fund holds 105 positions, making it more concentrated by design than the broader growth ETFs. That concentration has historically produced stronger returns during technology-led bull markets and sharper drawdowns during corrections.
QQQM’s structure aligns with a goal of maximizing tax-free growth over a long horizon, given its concentrated technology exposure and low turnover. The fund’s exclusion of financials and tighter holding count make it more sensitive to Nasdaq-specific volatility than a broader growth index.
iShares S&P 500 Growth ETF: The Valuation-Aware Alternative
iShares S&P 500 Growth ETF (NYSEARCA:IVW) draws its holdings exclusively from the S&P 500, applying growth screens to that universe rather than starting from a broader large-cap or Nasdaq-listed pool. The result is a portfolio of 143 companies already subject to the S&P 500’s profitability and liquidity requirements before the growth filter is applied.
The fund holds approximately $64 billion in assets and carries a net expense ratio of 0.18%. The portfolio is somewhat more diversified than QQQM, with financials representing about 9.7% of assets and industrials about 6.8%, which provides modest exposure to sectors that pure-play growth ETFs often underweight.
The S&P 500 foundation means IVW’s holdings have passed a profitability screen that QQQM and VUG do not explicitly require. For investors who want growth exposure but prefer companies with demonstrated earnings capacity, IVW’s construction implicitly provides that filter. The fund’s top holding represents about 14.6% of the portfolio, which is concentrated but within the range of other funds on this list.
Investors who already hold an S&P 500 index fund in other accounts may find the incremental growth tilt less meaningful than they expect, given the substantial overlap with the broad index. However, for those seeking “quality growth” with a profitability floor, IVW remains a structurally distinct choice.
Matching Growth ETF Structure to Your Roth Strategy
The personal savings rate has declined, falling from 6.2% in early 2024 to 4.0% by late 2025, which makes the efficiency of every retirement dollar more consequential. With the 10-year Treasury yield near 4.34% and the Fed funds rate at 3.64%, the real return environment makes tax-free compounding through a Roth account genuinely valuable over long time horizons.
VUG offers the lowest cost at 0.03% with a broad growth mandate. SCHG provides a slightly wider sector lens, including some financial and industrial exposure, at nearly identical cost. QQQM carries a higher Nasdaq-specific concentration and a purer technology-growth tilt. IVW applies the S&P 500’s profitability screen before the growth overlay, adding an implicit quality filter.