A significant change is coming to 401(k) catch-up contributions for high earners as we head into 2026. This update stems from regulations set forth by the IRS under a provision of the SECURE 2.0 Act, enacted in 2022. Starting next year, individuals earning $145,000 or more annually will be required to make their catch-up contributions to after-tax Roth accounts, rather than traditional pre-tax accounts.
Currently, workers aged 50 and older have the option to contribute extra funds to their 401(k) plans, which can help bolster their retirement savings. As it stands until the end of 2025, these individuals can choose to put their catch-up contributions into either a traditional account, where they can enjoy tax deductions, or a Roth account. However, the new regulations will limit these choices for higher earners beginning in 2026.
In practice, this means that individuals who reach the income threshold will not benefit from an upfront tax deduction for their catch-up contributions, a significant disadvantage compared to their lower-earning counterparts. For workers aged 50 and above, the catch-up contribution limit in 2025 will be set at an additional $7,500 on top of the standard contribution limits, which is $23,500 for those under 50. Moreover, workers aged 60 to 63 can contribute up to $11,250 in catch-up contributions for that same year.
It’s worth noting that not all retirement plans currently offer Roth options. This could potentially leave some high earners unable to make these contributions unless their employer provides a Roth 401(k) solution. Interestingly, many employers are adapting to this shift; Fidelity reports that about 95% of their managed plans now include Roth options, a rise from 73% two years ago. Vanguard is also on board, with 86% of its managed 401(k) plans offering similar options.
While traditional 401(k) accounts allow for tax breaks upfront, they come with taxes due upon withdrawal during retirement. On the flip side, Roth accounts do not provide immediate tax relief but instead offer tax-free growth and withdrawals during retirement. As these changes unfold, it will be crucial for high earners to reassess their retirement savings strategies and be aware of the implications of these new regulations.
