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Important Change Coming to 401k Catch-Up Contributions in 2026 Thumbnail

Important Change Coming to 401k Catch-Up Contributions in 2026

RETIREMENT FUNDING

Starting January 1, 2026, new rules under the federal SECURE 2.0 Act will impact how certain employees make retirement plan catch-up contributions. If you’re age 50 or older and considered a “high-income earner,” it’s important to understand what’s changing and how it may affect your retirement and tax strategy.

What’s Changing

Beginning in 2026:

  • If you are age 50 or older, and
  • Your 2025 FICA wages from this company exceed $145,000 (this amount will be indexed annually for inflation), and
  • You wish to make catch-up contributions to your 401(k) plan,

then all of your catch-up contributions must be made as Roth contributions (after-tax). Pre-tax catch-up contributions will no longer be allowed if you fall into the high-income category.

What This Means for You

  • Standard contributions unaffected: You can still make your standard 401(k) contributions (up to the IRS annual limit) as either pre-tax or Roth. This change only applies to catch-up contributions.
  • Shift to Roth taxation: Roth contributions are made after taxes are withheld. While they don’t reduce your current taxable income, qualified withdrawals in retirement—including both contributions and investment earnings—will generally be tax-free.

Tax Strategy Considerations

This shift could have broader tax implications than many people realize. If one spouse is affected, it may modestly increase taxable income in the near term. However, if both spouses are considered high-income earners and required to make Roth catch-up contributions, the combined effect could push household income above certain tax thresholds. For example, higher reported taxable income could:

  • Limit eligibility for the senior tax deduction.
    • Reduce or phase out the Qualified Business Income (QBI) deduction.
    • Affect other income-based credits, deductions, or Medicare-related surcharges.

This makes it especially important to review your overall tax plan—what looks like a minor change in retirement savings rules may actually shift your household’s tax picture in a meaningful way.

What You Need to Do Before 2026

  1. Review your current contributions – If you are age 50+ and contributing above the annual 401(k) limit ($23,500 for 2025), the excess is classified as catch-up
  2. Decide whether to continue catch-up contributions – Starting in 2026, those will be Roth-only if your wages exceed the threshold.
  3. Prepare to update elections – Before year-end 2025, you’ll need to adjust your payroll elections to align with the new rules. More guidance on how to do this should be provided by your company's benefits department and 401k provider.

Bottom Line: This change is not just about retirement savings—it’s also about tax planning. Take time now to evaluate how Roth catch-up contributions may affect your short-term taxable income and long-term retirement goals.

Next Steps: Consider meeting with a financial advisor or tax professional to run projections, especially if both spouses may be impacted. Proactive planning can help you avoid unexpected tax consequences and ensure your retirement strategy continues to align with your overall financial goals.


Disclaimer: This blog post is provided for informational and educational purposes only and should not be construed as tax, legal, or accounting advice. You should consult with a qualified tax professional, CPA, or attorney regarding your specific situation before making any decisions. The information contained herein is based on sources believed to be reliable, but accuracy and completeness cannot be guaranteed.