Roth 401(k) Catch-Up Contributions: What’s Changing for High Earners

For nearly 25 years, workers age 50 and older have been able to boost their retirement savings through 401(k) “catch-up” contributions — extra amounts set aside beyond the standard annual limit. But beginning January 1, 2026, new IRS rules will require high-income earners to make those catch-up contributions in a Roth 401(k) rather than a traditional pre-tax account.

This change, introduced under SECURE 2.0, affects employees whose prior-year FICA wages exceed $145,000 (indexed annually for inflation). It removes the option to take an immediate tax deduction for catch-up contributions — meaning those dollars will be contributed after tax but grow tax-free for life, provided certain rules are met.

“The rule change may feel like bad news in the short term, but ultimately it could be beneficial. Many high earners are already overinvested in tax-deferred accounts, and this helps balance your exposure.”

How Catch-Ups Work Today

In 2025, workers can contribute up to $23,500 to their 401(k) plan, plus an additional $7,500 in catch-up contributions (for a total of $31,000). For those aged 60–63 (individuals who turn 60, 61, 62, or 63 at any point during the 2025 calendar year), a new “super catch-up” of up to $11,250 is available.

Historically, participants could decide whether to make these contributions to a traditional (pre-tax) or Roth (after-tax) account — whichever aligned best with their tax situation.

What’s Changing in 2026

Starting in 2026, anyone with $145,000 or more in prior-year wages must direct all catch-up contributions to a Roth 401(k).

Traditional catch-up contributions (made pre-tax) will no longer be allowed for this group.
Roth contributions won’t reduce your current taxable income — but future qualified withdrawals, including growth, will be tax-free.
Those earning below $145,000 can continue to choose between Roth and traditional options.

“This isn’t necessarily a setback — it’s an opportunity for tax diversification. By having both Roth and traditional savings, you can manage taxes more flexibly in retirement.”

Planning Opportunities

Tax Diversification: Having both Roth and pre-tax accounts lets you manage your taxable income strategically in retirement.
Wealth Transfer Benefits: Roth accounts don’t have required minimum distributions (RMDs) during the original owner’s lifetime, making them a powerful estate planning tool.
Five-Year Rule: Remember, Roth accounts must be open for five years before tax-free withdrawals apply — so starting earlier can pay off.
Super Catch-Up Strategy: Those aged 60–63 in 2025 may want to maximize pre-tax contributions before the rule takes effect.

What Employers Need to Know

Plan administrators must update their systems, amend plan documents, and ensure Roth options are available. This added complexity prompted the IRS to delay implementation until 2026, giving employers more time to adapt.

Check with your employer provided 401k plan to make sure they have a Roth 401(k) in place so that you can make the catch-up contribution. Per the IRS regulations issued September 15, 2025, employer 401k plans that don’t offer Roth 401(k) contributions cannot allow high-paid employees to make any catch-ups – pre-tax or Roth. You may want to encourage your employer to modify their plan to include the 401(k).

The Bottom Line

While the shift to mandatory Roth catch-ups limits flexibility for high earners, it also introduces valuable long-term benefits — especially for those looking to build tax-free income streams in retirement.

“This isn’t a penalty — it’s a prompt to rebalance how we save for the future.”

If you’re approaching retirement and earn above the $145,000 threshold, it’s a good time to review your contribution strategy and discuss how this change fits into your broader tax and retirement plan.

We know all of this can be confusing, if you'd like to discuss your personal options - feel free to reach out to Birch Street Financial Advisors.