Individuals Must Prepare for Changes to Certain Retirement Plan Catch-Up Contributions in 2026 by Maxwell Jewell, CPA, MST
High earners ages 50 and older who participate in 401(k) and 403(b) workplace retirement savings plans should note new changes to the treatment of catch-up contributions beginning in 2026. Effective Jan. 1, 2026, catch-up contributions made by individuals with wages at or exceeding $150,000 in 2025 must be made with after-tax dollars to Roth accounts.
Background
Generally, 401(k) plan contributions via salary deferral are made with pre-tax dollars, which qualify plan participants for a deduction that reduces their taxable income in the years of funding. Historically, the same rule applied to catch-up contributions for participants aged 50 and older. Contributions and earnings in these plans grow tax deferred until account owners reach age 59½, when withdrawals are subject to tax at their ordinary income tax rates. Once account owners turn 75 (age 73 for individuals born before 1960), they must begin taking annual required minimum distributions (RMDs) and treat them as taxable income.
By contrast, contributions to Roth accounts are made with after-tax dollars, meaning plan participants lose the up-front tax deduction that can reduce their taxable income during their peak earning years. Instead, they receive tax-free earnings growth, tax-free withdrawals in retirement (provided they funded the plan for at least five years before making a withdrawal), and an exclusion from RMDs in their later years.
The New Roth Catch-Up Contribution Rules
Beginning in tax year 2026, employees ages 50 and older with prior-year FICA earnings of $150,000 or more are no longer allowed to make catch-up contributions to workplace retirement plans with pre-tax dollars. Instead, they must make those catch-up contributions with after-tax dollars to an employer’s Roth account.
As a reminder, the annual 401(k) contributions limits for 2026 are:
- $24,500 for regular plan contributions with pre-tax dollars
- $8,000 in catch-up contributions for taxpayers aged 50 and older
- $11,250 in super catch-up contributions for taxpayers aged 60 through 63
With this new provision introduced by the SECURE Act 2.0, high earners lose a valuable tax deduction for catch-up contributions, potentially lowering their take-home pay and yielding higher taxable income during their prime earning years. It also has the potential to push plan participants into higher tax brackets and affect their eligibility for certain tax deductions, including those related to state and local taxes (SALT) payments and qualified business income (QBI).
On the plus side, withdrawals from Roth accounts can be favorable for individuals who want tax-free withdrawals in retirement, especially if they expect to be in a higher tax bracket during those years. Roth accounts are also exempt from RMD rules, thereby allowing account owners to continue building tax-free wealth throughout their lives and pass it on to future generations.
Exemptions from the Roth Mandate
Based on the language of the law, the Roth catch-up contribution requirements do not apply to individuals ages 50 and older with FICA earnings below the threshold amount (i.e., $150,000 in 2025) nor to employees of companies that do not offer Roth 401(k) options. Only plans that permit Roth contributions can accept Roth catch-up contributions. Without this provision, Roth catch-up contributions are not allowed. It also exempts certain self-employed individuals, including sole proprietors and partners in some partnerships and LLCs, who may continue making pre-tax contributions to their plans in 2026.
Planning Strategies
While taxpayers cannot avoid the new Roth mandate and the potential increase in taxable income in the current year, there are some strategies they may consider to mitigate any negative impact. For example, they may reduce their taxable income by adjusting their withholding or making pre-tax contributions to a Health Saving/s Account (HSA) or a Flexible Savings Account (FSA). Consideration should also be given to non-qualified deferred compensation plans (if offered by the employer), Individual Retirement Accounts (IRAs) and back-door Roth conversion. It is important to make these decisions under the guidance of experienced financial advisors to determine what strategy may be best for your unique tax circumstances.
About the Author: Maxwell Jewell, CPA, MST, is managing director of Tax Services with Baker Tilly, where he provides tax and consulting services to high-net-worth families and businesses in the private equity, hedge fund software sectors. He can be reached at the CPA firm’s New York City office at (646) 213-7600 or info@bpbcpa.com.
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