For high earners over age 50, a retirement-saving strategy that was available for years may now be off the table. Depending on your income, you may have to make catch-up contributions to a Roth account instead of a traditional 401(k). And this change could affect your tax bill today and your retirement savings later.
The New Tax Rule for Anyone Earning Over $150,000
Starting in 2026, a key provision of the SECURE 2.0 Act changes how certain workers make 401(k) catch-up contributions. If you earned more than $150,000 from your employer in the prior year, any catch-up contributions you make to a workplace retirement plan must go into a Roth account, not a traditional pre-tax account. The $150,000 threshold is indexed for inflation and will adjust in future years. 1
The rule generally applies to catch-up contributions made to 401(k), 403(b) and governmental 457(b) plans, but affects only workers who are eligible to make catch-up contributions and whose prior-year wages from a single employer exceeded the income threshold.
If you earn at or below that limit, you can still choose between a traditional or Roth treatment within your workplace plan, assuming your employer’s plan offers both.
Congress included the change as a revenue-raising measure because Roth contributions are taxed upfront, while traditional contributions are generally taxed when the money is withdrawn in retirement.
For higher earners, the most immediate effect is the loss of a current-year tax deduction. Before the change, catch-up contributions were made on a pre-tax basis, which reduced taxable income. But now, those contributions must be made with after-tax dollars. And this will increase your tax bill on the year when the contribution is made.
Why It Stings Now (But Can Pay Later)
For many higher-income workers, the new rule effectively eliminates a tax break But the loss of an upfront deduction is only part of the picture. This tax change could ultimately benefit some retirement savers. Since qualified Roth withdrawals are generally tax-free, paying upfront now may mean less of your retirement income gets taxed later.
Whether this works in your favor comes down to one question: Will your tax rate be higher or lower in retirement than it is today? Those who expect to be in a lower bracket later often prefer traditional contributions because they can defer taxes until rates are lower, which may mean paying less overall.
A financial advisor can help you decide which approach makes more sense based on future tax brackets.
What to Check With Your Plan This Year
If you are subject to the new rule, confirm that your employer’s retirement plan offers a Roth contribution option. Most large plans have already added Roth features, but some employers are still updating their systems and plan documents to accommodate SECURE 2.0 changes.
And, if your plan supports Roth contributions, check how your payroll deductions are currently set up. If you expect to make catch-up contributions, verify that your contribution elections and payroll settings line up with the new requirements before they take effect.
Many employers and plan administrators are notifying participants about operational changes tied to the new catch-up contribution rules. If you receive enrollment materials, benefits updates or year-end communications from your plan, read them carefully, as they may contain details that affect how you save for retirement.
If you are unsure how the new rules apply to your situation, a financial advisor can help you review your options and adjust your retirement savings strategy accordingly.
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