If you’re 50 or older and earned more than $150,000 last year, a rule that’s been on the books since 2022 finally caught up with your paycheck this year. Starting in 2026, SECURE 2.0 requires that your 401(k) catch-up contributions go in as Roth — after-tax — rather than traditional pre-tax dollars. For many of the professionals we work with, this is the single most noticeable retirement plan change in years. Here’s what’s actually happening and how to think about it.
The rule in plain English
The 2026 contribution limits work like this: anyone can defer up to $24,500 into their 401(k). If you’re 50 or older, you can add a catch-up contribution of $8,000 on top. And if you’re age 60 through 63, the “super catch-up” raises that to $11,250.
What’s new is how the catch-up portion is taxed for higher earners. If your FICA wages — Box 3 of your W-2 — from your employer exceeded $150,000 in 2025, every dollar of catch-up you contribute in 2026 must be designated Roth. You lose the up-front deduction on that portion, but the money grows tax-free and comes out tax-free in retirement.
A few details worth knowing:
- The test is per employer. It looks only at wages from the company sponsoring your plan. If you changed jobs, your new employer has no prior-year wages for you, so the rule doesn’t apply in year one.
- Self-employment income doesn’t count. Partners, sole proprietors, and others whose earnings aren’t FICA wages are generally outside the rule — a meaningful nuance for the practice owners and consultants we serve.
- One dollar over is over. There’s no phase-in. At $150,001 of prior-year wages, the entire catch-up must be Roth.
The catch inside the catch-up
Here’s the trap: if your employer’s plan doesn’t offer a Roth option, high earners can’t make catch-up contributions at all. Most large plans have added Roth features to comply, but if you’re at a smaller firm — or you sponsor the plan yourself — this is worth confirming before you assume your usual contribution schedule will go through. We’ve already seen payroll systems quietly stop catch-up deferrals for affected employees at companies that hadn’t amended their plans.
Is mandatory Roth actually bad for you?
Instinctively, losing a deduction feels like a loss. In practice, it’s more nuanced.
Yes, you’ll pay tax now on up to $8,000 (or $11,250) that used to reduce your taxable income. At a 32% marginal rate, that’s roughly $2,560 of additional current-year tax on a full standard catch-up.
But Roth dollars are arguably the most valuable dollars in your retirement picture. They grow tax-free, they’re not subject to required minimum distributions during your lifetime, and under the 10-year rule they’re the most tax-efficient asset to leave to your children. If you expect tax rates — yours or everyone’s — to be higher down the road, being forced into Roth may end up being a favor.
What to do about it
Three practical steps for this year. Confirm your plan has a Roth feature so your catch-up contributions don’t silently stop. Revisit your withholding or estimated payments, since the lost deduction will nudge your tax bill up. And look at the rest of your tax picture — if you’re now paying tax on catch-up dollars anyway, it may change the math on other moves you were considering, like Roth conversions or charitable bunching.
If you’re not sure how the new rule interacts with your specific situation — especially if you’re between 60 and 63 and eligible for the larger super catch-up — that’s a conversation worth having before year-end, not at tax time.
Newbridge Wealth Management is a fee-only, SEC-registered investment adviser in Bryn Mawr, PA. This article is for educational purposes only and is not tax or investment advice. Consult your tax professional about your specific situation.
