High Earners 50+ Are About to Lose a Major 401(k) Tax Break

For decades, one of the most valuable perks for workers nearing retirement has been the ability to make extra “catch‑up” contributions to their employer-sponsored retirement plans, often on a pre‑tax basis. These additional contributions helped millions boost savings while trimming taxable income during peak earning years.

That familiar strategy will change in 2026.  Under the SECURE 2.0 Act, the IRS finalized rules that require certain high earners to make those catch‑up contributions on a Roth (after‑tax) basis instead. This shift marks the first time the tax code mandates Roth treatment for retirement savings, and it could affect tax planning, income thresholds, and retirement strategy.

What’s Changing and Who Is Affected

Under the final regulations, if your prior‑year W‑2 wages exceed $145,000  (indexed for inflation), you must make all 401(k), 403(b), or governmental 457(b) catch‑ups as Roth contributions. In other words, you’ll pay the tax now instead of later. This determination is based on FICA‑covered W-2 wages, meaning it reflects only your employer-related compensation.

For instance, if you typically used pre‑tax catch‑ups to manage your adjusted gross income (AGI), expect less AGI “shelter” from 2026 onward. That can affect income‑sensitive items, such as Medicare’s income-related monthly adjusted amount (IRMAA) brackets or other phase‑outs, making proactive planning essential.

How Much Can You Save Now?

For 2025, you can defer up to $23,500 to a 401(k). The standard catch‑up for age 50+ remains $7,500, and there’s a new “super catch‑up” of $11,250 apples for those age 60 to 63 (if your plan allows it).

What If My Plan Doesn’t Offer Roth?

Starting in 2026, high earners must use Roth catch‑ups, and plans without a Roth feature block participants from making catch‑ups until the sponsor adds the feature. The good news: Roth access is already widespread. Among large recordkeepers, approximately 86% of plans allow Roth contributions, according to Vanguard.

Why This May Still Be a Win

Mandatory Roth catch‑ups can provide tax diversification:

• Tax‑free income later: Roth dollars compound tax‑free and can be withdrawn tax‑free if rules are met—useful when required minimum distributions (RMDs) from pre‑tax accounts inflate taxable income.
• Brackets and surcharges: Paying tax now may affect future modified AGI and could influence RMD‑related bracket changes or surcharges such as IRMAA.
• Estate planning implications: Roth assets can provide tax-free inheritance potential, while pre-tax balances may require taxable withdrawals by beneficiaries.

Moves to Consider in 2025–2026

1. Max this year’s limits. Confirm whether your plan supports the age‑60 to 63 $11,250 super catch‑up for 2025 and adjust payroll deferrals now so you don’t leave money on the table.
2. Turn on “Roth readiness.” Verify your plan’s Roth feature and confirm how your employer will apply the W‑2 wage test once the rule takes effect in 2026. If your plan doesn’t offer Roth yet, ask your human resources department about timing.
3. Coordinate taxes. Because Roth catch‑ups won’t reduce current‑year taxable wages, revisit withholding, estimated taxes, charitable bunching, and other strategies to manage AGI in high‑income years.
4. Right‑size your account “location.” Aim for a balanced mix across pre‑tax, Roth, and taxable accounts. A diversified tax base gives you more levers to pull for cash‑flow and bracket management in retirement.
5. Evaluate alternatives. When your plan limits features, explore mega backdoor Roth (after‑tax 401(k) contributions with in‑plan Roth conversion), traditional “backdoor” Roth IRAs, or disciplined taxable investing.

The Bottom Line

Pre‑tax catch‑ups have been widely used, but beginning in 2026, certain high earners will be required to make these contributions as Roth-only. Use the time before 2026 to review contribution options, verify your employer’s Roth setup, and evaluate potential tax planning considerations. This shift may provide additional options in retirement and potentially influence the after‑tax composition of your savings.

This material is for educational purposes only and is not tax, legal, or investment advice. Consult your tax advisor and financial planner about your specific situation and the latest IRS guidance.