Major 401(k) Change Starting in 2026
A sweeping new retirement rule is on its way for high earners: beginning in 2026, employees age 50 and up earning more than $145,000 will be required to make their “catch-up” 401(k) contributions as Roth (after-tax) dollars instead of pretax. This shift, part of the Secure 2.0 Act, is designed to boost government revenues long-term—but for workers used to the current tax-deferral strategy, it’s a big adjustment.
As I shared in the article, the impact is twofold. On one hand, those catch-up dollars will now be taxed up front (eliminating the current income-reducing benefit), but, as I explained, “Your money will grow tax-free from that point on, and you won’t owe taxes on withdrawals in retirement.” For savers who expect their tax rate to be higher in the future, this can be a valuable, forced Roth diversification opportunity. Still, anyone counting on the short-term reduction of taxable income from pretax catch-ups will need a new plan.
My advice to affected workers is straightforward: don’t wait until the deadline to rethink your savings strategy. “Run long-term tax projections, review your current contribution choices, and coordinate with your plan administrator to understand exactly how your 401(k) will handle this shift in 2026.” Front-loading catch-up contributions in 2025 while they’re still pretax, or gradually shifting your mindset toward Roth now, could make a big difference.
The article also notes that, according to Vanguard’s latest research, only about 16% of eligible workers actually make catch-up contributions—most of them higher earners. Since these new rules could affect a significant chunk of accumulated retirement savings (and future withdrawal tax bills), anticipating how required Roth catch-ups alter your long-term picture is critical.
Bottom line:
If you’re a high-income saver nearing retirement, required Roth catch-up contributions could change how much tax you pay now—and how much you keep later. As I emphasized for AOL readers, take the next year to review your projections, coordinate with your advisor, and plan holistically. Smart action now is the best way to turn an IRS rule change into a wealth-building opportunity.