Many high-income taxpayers fully take advantage of a company-sponsored 401(k) plan by maximizing their annual pretax contributions.

For taxpayers older than 50, that includes using the extra catch-up contribution to further reduce their taxable income while supplementing their retirement savings. Starting in 2026, however, the rules are changing.

The Secure 2.0 Act requires that taxpayers with earnings of more than $150,000 must treat any catch-up contributions as Roth contributions. That eliminates the previously available tax break that these taxpayers were able to claim. High-income taxpayers, then, could find that their taxes will jump in 2026 because of this lost tax deduction.

The new tax year is treated as a type of grace period for employers, who are only required to make a reasonable, good-faith effort to comply with the new rules. Plan participants, on the other hand, are subject to the Roth requirement as of Jan. 1.

While, as a general matter, clients should watch for ongoing guidance from the Internal Revenue Service, there are possible steps that taxpayers can take now considering the changes.

Roth Catch-Up Mandate: The Basics

Starting in 2026, employees with at least $150,000 in FICA wages must treat all catch-up contributions as Roth contributions. Included are both the traditional $8,000 catch-up contribution and the “super catch-up” of $11,250 that’s available to taxpayers aged 60-63. The $24,500 “regular” contribution amount can continue to be made on a pretax basis — and the Roth requirement does not apply for 2025 contributions. The $150,000 amount will be indexed for inflation in $5,000 increments going forward.

The entire catch-up contribution, therefore, is made with after-tax dollars, so the immediate tax deduction will be lost. Roth funds, however, can be withdrawn tax-free, while distributions from traditional retirement accounts are fully taxable.

Only FICA wages from the employer who sponsors the retirement plan count. Investment income, a spouse’s income and even self-employment wages won’t be counted in determining whether a client has reached the $150,000 threshold. The IRS has confirmed that the definition of “wages” for purposes of the Roth mandate includes only wages that are subject to FICA taxes (so amounts that are reported in Box 3 of the taxpayer’s Form W-2).

When a participant is required to make a Roth catch-up contribution, yet makes a pre-tax catch-up contribution, the final regulations allow plans to treat the pre-tax catch-up election as though the participant had elected to make a Roth contribution. However, the participant must be given an effective opportunity to opt out of the deemed Roth election. Deemed elections must also stop within a reasonable time after the participant is no longer subject to the Roth mandate.

Planning for the 2026 Changes

Clients should be advised on the potential benefits of funding a Roth account in the first place. Those who have a source of tax-free income upon which to draw in retirement are generally better able to manage their tax picture and minimize overall taxes later in life. That’s especially true for higher-income clients who will likely have higher RMD requirements. A Roth account can be extremely valuable for this reason alone.

Next, clients should understand that the Roth mandate applies only to employer-sponsored 401(k)s. IRAs have lower catch-up contribution limits ($1,100 in 2026), but there is no Roth requirement.

Clients should also consult their employers to determine whether they offer a Roth option.

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