Starting in 2026, employees above a wage threshold have to direct their 401(k) catch-up contributions to the Roth side, which changes both the tax treatment and the cash flow of saving after 50.
For years, the catch-up contribution was a straightforward way for people over 50 to reduce current taxable income while adding to a pre-tax balance. A change under SECURE 2.0 alters that for higher earners, and the year-end payroll period is when the change becomes visible on a pay stub. Does a Roth catch-up help or hurt a household that expects to be in a lower bracket in retirement?
Schedule a complimentary consultation with Ben Loughery.
The 2026 limits
The IRS announced the following 2026 figures in Notice 2025-67 and an accompanying news release:
- The 401(k) elective deferral limit is $24,500, up from $23,500 for 2025.
- The catch-up limit for people age 50 and older is $8,000, up from $7,500, which the IRS describes as allowing participants 50 and older to contribute up to $32,500 each year starting in 2026.
- For people who reach age 60, 61, 62, or 63 in 2026, the higher "super catch-up" limit remains $11,250 instead of $8,000.
- The IRA contribution limit is $7,500, with a catch-up of $1,100 for those 50 and older.
The Roth requirement
Notice 2025-67 sets what it calls the Roth catch-up wage threshold. It states that the threshold used to determine whether an individual's catch-up contributions for 2026 must be designated as Roth contributions is increased from $145,000 to $150,000. The threshold is stated as the 2025 figure, which indicates it is measured against prior-year wages.
In plain terms, an employee whose wages in the prior year exceeded the threshold must make catch-up contributions in 2026 as Roth contributions. That means the catch-up dollars go in after tax, with no deduction now, and qualified withdrawals later can be tax free.
We could not confirm from the IRS sources we reviewed several of the details that determine how the rule applies in practice: how wages are measured when someone has more than one employer, and what a plan that lacks a Roth option has to do. Those are questions for your plan administrator and a tax professional, and we do not state answers here.
What changes in the tax picture
Under the old approach, a pre-tax catch-up of $8,000 reduced taxable income by $8,000 in the year it was made. Under the Roth requirement, taxable income stays the same, and the tax benefit shows up later as tax-free qualified distributions rather than as a deduction now.
That shift has several planning consequences:
- Take-home pay. Because the contribution is after tax, take-home pay for an affected employee is lower than it would be with a pre-tax catch-up of the same size.
- Tax diversification. A larger Roth balance gives a retiree another source of tax-free income, which can help manage taxable income in later years. This has appeal for households whose pre-tax balances are already large.
- The bracket comparison. The relevant comparison is the bracket on the money now against the bracket on the money later. For a household in a high bracket today that expects a lower bracket in retirement, a pre-tax contribution would have been the better choice, and the new requirement removes that option for the catch-up portion. For a household expecting similar or higher future brackets, the Roth treatment may suit them well.
Who is likely affected
The rule is tied to prior-year wages above $150,000, so it centers on higher earners within employer plans. People under the threshold are not required to make catch-ups as Roth contributions. A business owner who sponsors a plan may face both sides of the rule, as an employee and as the person choosing plan design.
For those approaching the end of the year, a few questions are worth asking before the final payroll dates: whether the plan offers a Roth option, how contributions are being coded on the pay stub, and whether the year-to-date total will reach the limit.
A hypothetical example
Consider Priya, a fictional 58-year-old executive in Atlanta earning well above the threshold. In prior years she contributed the maximum pre-tax and took the catch-up the same way. This year, her catch-up contributions must go in as Roth. She might ask how much of her take-home pay changes, whether her combined pre-tax and Roth balances support the tax-free income she wants in retirement, and whether she should revisit her Roth conversion plans now that she is building a Roth balance from the catch-up. This example is hypothetical and is not a recommendation.
Does the Roth treatment fit your retirement tax plan?
The mandatory Roth catch-up is a rule you do not choose, but how you respond to it is a planning decision. It touches paycheck cash flow, the balance between pre-tax and Roth accounts, and the long-term plan for withdrawals.
Ben can help you see how the change fits into your projected taxes in retirement.
Schedule a complimentary consultation with Ben Loughery.
*Ben Loughery is a CERTIFIED FINANCIAL PLANNER® and founder of Lock Wealth Management, based in Atlanta, GA. He specializes in retirement income planning, tax optimization, and helping clients build financial confidence at every stage of life.*
*This article is for educational purposes and is not tax, legal, or investment advice.*
