If you’re over 50 and earning a high income, there’s an important change on the horizon that could affect how you save for retirement.
As part of the SECURE 2.0 Act of 2022, the IRS will soon require certain older, higher-earning employees to make 401(k) catch-up contributions on a Roth basis rather than pre-tax. Starting January 1, 2026, individuals aged 50 and older who earned more than $145,000 (in wages from the prior year with their current employer) will no longer be allowed to make pre-tax catch-up contributions to their employer-sponsored retirement plan.
Here’s what you need to know:
What’s Changing?
- Today, workers over 50 can make an additional “catch-up” contribution to their 401(k) plan—currently up to $7,500/year—either pre-tax or Roth.
- Beginning in 2026, if you earn more than $145,000, your catch-up contributions must be made as Roth contributions, meaning you’ll pay taxes on those dollars now in exchange for tax-free withdrawals later.
- If your plan does not offer a Roth option, it must be amended to add one—or else no one in the plan will be able to make catch-up contributions at all.
Why It Matters
- Roth contributions can be powerful tools for building tax-free income in retirement—but they may also impact your current-year tax bill.
- This new requirement eliminates flexibility for high earners who preferred the immediate tax deduction of pre-tax catch-up contributions.
- Employers and plan sponsors need to update plan documents and payroll systems to remain compliant.
What Should You Do Now?
- Check if your plan allows Roth contributions—and if not, ask your employer if an update is in the works.
- Evaluate how this change affects your tax planning strategy, especially if you’re used to taking the deduction now rather than paying taxes upfront.
- Talk us about whether Roth contributions make sense for your overall retirement income picture. We will be sure to mention this if it applies to you in our next meeting.
We’ll continue to monitor IRS guidance as implementation approaches, and we’re here to help you navigate the best path forward.
While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James.
