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Important Changes to 401(k) Catch-Up Contributions Starting in 2026 Thumbnail

Important Changes to 401(k) Catch-Up Contributions Starting in 2026

RETIREMENT FUNDING

New federal rules will require high-income earners to make catch-up contributions as Roth (after-tax) only

If you're age 50 or older and earn above a certain income threshold, significant changes are coming to how you can make catch-up contributions to your 401(k) plan. Here's what you need to know about these new requirements taking effect January 1, 2026.

What's Changing Under SECURE 2.0

The federal SECURE 2.0 Act introduces a new mandate for retirement plan catch-up contributions. Starting in 2026, the way certain high-income earners make catch-up contributions will fundamentally change.

Who Is Affected?

You will be impacted by these new rules if all three of the following apply to you:

  1. You are age 50 or older
  2. Your FICA wages from your employer exceeded $145,000 in the prior year (2025 wages will determine 2026 status; this threshold is expected to be indexed annually for inflation)
  3. You make or plan to make catch-up contributions to your 401(k) plan

If you meet all three criteria, you will be required to make all catch-up contributions as Roth (after-tax) contributions beginning in 2026. Pre-tax catch-up contributions will no longer be an option for you as long as you remain above the income threshold.

Understanding the Impact

What stays the same: Your standard (non-catch-up) contributions remain unaffected. You can still choose to make these deferrals on either a pre-tax or Roth basis—this rule change applies exclusively to catch-up amounts.

What's different: Catch-up contributions are additional contributions available to participants age 50 and older, beyond the standard annual limit. For 2025, the regular contribution limit is $23,500, and catch-up contributions allow an additional $7,500. If your total deferrals exceed the regular limit, that excess amount is considered a catch-up contribution.

The Roth difference: Roth contributions are made with after-tax dollars, meaning taxes are withheld before the contribution is made. While this means no immediate tax deduction, qualified withdrawals in retirement—including all earnings—are generally tax-free. This differs from pre-tax contributions, which reduce your current taxable income but are taxed upon withdrawal in retirement.

Action Items: What You Should Do Now

Don't wait until 2026 to address these changes. Take these steps before the end of 2025:

1. Review Your Current Contributions

  • Check whether you're currently making catch-up contributions
  • Calculate if your 2025 deferrals will exceed the $23,500 regular limit
  • Determine if your 2025 FICA wages will exceed the $145,000 threshold

2. Evaluate Your Strategy

  • Consider whether continuing catch-up contributions as Roth makes sense for your financial situation
  • Assess the tax implications of Roth versus pre-tax contributions for your circumstances
  • Think about your expected tax bracket in retirement versus today
  • Could you benefit from having both pre-tax and ROTH withdrawals in retirement?

3. Update Your Payroll Elections

  • Plan to update your deferral elections with your company before late 2025
  • Watch for further instructions from your employer on how to make these changes
  • Ensure your elections reflect the new requirements if you're affected

4. Seek Guidance

  • Attend the upcoming webinar (to be scheduled before year-end) that will explain these changes in detail
  • Contact your plan advisors if you have questions about whether you're affected
  • Consult with your personal financial or tax advisor to understand the best strategy for your individual situation

Why These Changes Matter

This rule change represents a significant shift in retirement planning strategy for high-income earners. While Roth contributions offer valuable tax-free growth and withdrawals in retirement, they also mean paying taxes now rather than later. Understanding how this impacts your overall financial and tax planning is crucial.

The mandatory nature of this change—removing the choice between pre-tax and Roth for catch-up contributions—means affected individuals need to plan proactively for the tax impact of these after-tax contributions.

Next Steps

Stay informed and take action before the 2026 deadline. Mark your calendar for the upcoming webinar, review your current contribution strategy, and consult with financial professionals as needed to ensure you're making the most informed decisions for your retirement future.

Remember: These changes only affect catch-up contributions for high-income earners. If you don't meet all three criteria listed above, you can continue making catch-up contributions on either a pre-tax or Roth basis as you choose.

This information is for educational purposes only and should not be considered tax or financial advice. Please consult with qualified professionals regarding your specific situation.


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.