A significant change is on the horizon for 401(k) retirement plans that will alter how high-income workers can make additional contributions. Beginning in 2026, a provision from the Secure 2.0 Act of 2022 will require certain employees to make their "catch-up" contributions on an after-tax Roth basis, eliminating the option for an upfront tax deduction on these savings.
This new rule specifically targets individuals who earned more than $145,000 from their current employer in the preceding calendar year. The change represents a fundamental shift in retirement savings strategy for many older, high-earning professionals, prompting financial advisors to recommend proactive planning before the rule takes effect.
Key Takeaways
- New Rule in 2026: High earners must make 401(k) catch-up contributions to a Roth account.
- Income Threshold: The rule applies to workers who earned over $145,000 in the previous year from their current employer.
- Tax Impact: This eliminates the upfront tax deduction for catch-up contributions for this group, but allows for tax-free withdrawals in retirement.
- Current Window: Until 2026, eligible workers can still choose between pre-tax (Traditional) and after-tax (Roth) catch-up contributions if their plan allows.
Current 401(k) Contribution Landscape
To understand the impact of the upcoming changes, it is essential to review the current rules for 401(k) contributions. For the 2025 plan year, employees can contribute up to $23,500 to their 401(k) accounts.
Workers aged 50 and over are permitted to make additional contributions, known as catch-up contributions. This provision is designed to help older employees bolster their retirement savings as they approach their non-working years.
Contribution Limits for 2025
The standard catch-up contribution limit for workers aged 50 or older is an additional $7,500 per year. This allows them to save a total of $31,000 in 2025.
Furthermore, the Secure 2.0 Act introduced an enhanced catch-up limit for a specific age group. Workers aged 60 to 63 can contribute an even larger amount, with their catch-up limit increasing to $11,250. Currently, these contributions can be made to either a traditional pre-tax account or an after-tax Roth account, depending on the options provided by the employer's plan.
Traditional vs. Roth Contributions
The choice between traditional and Roth contributions has significant tax implications. Traditional pre-tax contributions reduce your taxable income in the present, providing an immediate tax break. However, withdrawals from these accounts during retirement are taxed as ordinary income. In contrast, Roth after-tax contributions offer no upfront tax deduction, but the funds grow tax-free, and qualified withdrawals in retirement are also tax-free.
The Secure 2.0 Act Mandate for High Earners
The Secure 2.0 Act of 2022 introduced a wide range of reforms to the U.S. retirement system. One of the most notable changes is the new requirement for high earners regarding their catch-up contributions.
Starting January 1, 2026, if an employee's wages from their current employer exceeded $145,000 in the prior calendar year, any 401(k) catch-up contributions they make must be directed into a Roth account. This mandate effectively removes the choice for pre-tax savings on these extra contributions for this income bracket.
This policy is designed to increase federal tax revenue, as it shifts tax payments from the future (at withdrawal) to the present (at contribution). For savers, it means a lower immediate tax benefit but potentially greater tax-free income in retirement.
Who Uses Catch-Up Contributions?
According to a 2025 report from Vanguard, which analyzed nearly 5 million participant accounts, catch-up contributions are not widely used. While nearly all retirement plans offered the option in 2024, only 16% of eligible workers took advantage of it. The report also found that the majority of those who did make catch-up contributions were high earners, with most participants earning $150,000 or more.
Strategic Planning Before the 2026 Deadline
With the deadline less than two years away, financial experts are urging high-income workers to evaluate their retirement strategies now. The period until the end of 2025 offers a final window to make pre-tax catch-up contributions if that aligns with their financial goals.
"Now is the time to work with your advisor or tax preparer to run multi-year tax projections," said Patrick Huey, a certified financial planner and owner of Victory Independent Planning. He suggests that this analysis can help individuals decide whether to maximize pre-tax contributions now or to begin making Roth contributions sooner in anticipation of the change.
The decision to favor pre-tax or Roth contributions depends on several personal financial factors. Key considerations include an individual's current marginal tax rate compared to their expected tax rate in retirement.
Factors Influencing Your Decision
When deciding on a strategy, savers should consider the following points:
- Future Tax Bracket: If you expect to be in a higher tax bracket during retirement, making Roth contributions now could be more beneficial. Paying taxes at your current, lower rate would allow for tax-free withdrawals when your rate is higher.
- Current Tax Burden: If your priority is to lower your taxable income today, maximizing pre-tax contributions through 2025 is the more logical approach.
- Estate Planning: Roth accounts can be valuable legacy planning tools, as they can pass to heirs tax-free.
Jared Gagne, a certified financial planner and assistant vice president at Claro Advisors, emphasized the need for action. He stated that the “key takeaway” for investors is to “not sit on the sidelines” as these significant rule changes approach.
Preparing for the New Retirement Reality
The shift to mandatory Roth catch-up contributions for high earners is a permanent change to the retirement savings landscape. While it may result in a higher tax bill in the short term for those affected, it also forces the creation of a tax-diversified retirement portfolio, with a bucket of funds that can be accessed tax-free.
High earners aged 50 and over should consult with financial and tax professionals to model different scenarios. This proactive planning can help ensure they are positioned to maximize their savings and minimize their long-term tax liability under the new rules.
For now, the choice remains. But starting in 2026, the strategy for making catch-up contributions will become much more defined for a significant portion of older American workers.
