High earners nearing retirement should take note: catch-up contribution rules are changing. Starting in 2026, workers who earned $145,000 or more in the previous year must make their 401(k) catch-up contributions on an after-tax basis through Roth accounts, forgoing the upfront tax break.

Under current rules through 2025, workers 50 and older can choose between before-tax traditional contributions (which reduce current taxable income) or after-tax Roth contributions.

The New York Post recently reported that the new IRS regulations, implementing the SECURE 2.0 Act, remove this flexibility for those exceeding the income threshold.     

Under the SECURE 2.0 Act, employees earning $145,000 or more will need to make their 401(k) catch-up contributions to after-tax Roth accounts starting next tax year.

How 401(k) catch-up contributions work

Understanding catch-up contributions is key to optimizing retirement savings. These contributions allow older workers to save beyond the standard $23,500 annual limit for those under 50. In 2025:

• Workers aged 50 and older can contribute an additional $7,500.
  
• Workers aged 60–63 can contribute an additional $11,250.
  

One notable caveat: if an employer’s plan doesn’t currently offer a Roth 401(k) option, employees may face limitations under the new rules. Fortunately, Roth access is expanding—95% of Fidelity-managed plans and 86% of Vanguard plans now include Roth features, up sharply from just a few years ago.

This represents a significant shift in tax policy—the first time the government has mandated Roth savings, collecting taxes immediately rather than during retirement.

Here’s what it means in real terms: A 60-year-old in the 35% tax bracket stands to lose a nearly $4,000 tax deduction on an $11,250 catch-up contribution. The higher adjusted gross income this creates can have ripple effects, including:

• Loss of income-phased tax breaks (student loan interest, state and local tax deductions)
• Potential movement into higher tax brackets

High earners face an even bigger problem if their employer doesn’t offer Roth 401(k) options: they won’t be able to make catch-up contributions at all.

It’s important to understand the tax trade-offs: Traditional 401(k) contributions reduce taxable income today but are taxed upon withdrawal, while Roth 401(k) contributions are made with after-tax dollars yet allow for tax-free growth and withdrawals in retirement.

How the $145,000 Threshold Works

The the WSJ reported that there are several nuances affect how this threshold applies:

Inflation Adjustment: The $145,000 limit is indexed annually for inflation. Milliman estimates that workers earning above $150,000 in 2025 at a single employer will be subject to the Roth-only requirement in 2026.

Per-Employer Application: The threshold applies separately to each employer. According to Nina Lantz, director of employee-benefits research at Milliman, workers with multiple jobs could still make pre-tax catch-up contributions at any employer where their 2025 wages remain below the threshold.

New Employee Exception: The prior-year lookback creates an advantage for job changers. Ian Berger, IRA analyst at Ed Slott & Co., notes that new employees may be exempt from the mandatory Roth requirement during their first year or two, since there’s no prior-year wage history with that employer.

If you have any questions about retirement or tax planning feel free to reach out to Huckabee CPA for a free consultation.