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A Major 401(k) Shift Could Cost High Earners a Key Tax Break in 2026

A major shift in catch-up contribution rules will force many high earners to rethink how they save for retirement.

By Adam Palasciano

Edited by Andrea Basse

Updated Nov. 20, 2025

If you want to set yourself up for retirement, being aware of upcoming retirement-plan rules is critical — especially if you're a high earner who uses 401(k) catch-up contributions to accelerate savings.

A key change coming in 2026 will shift tax treatment for catch-up contributions for certain high-income earners. This article walks through the rule shift, how it works, the tax implications, and what you can do now to adapt your contribution strategy accordingly.

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New rule will force high earners to use Roth for catch-up contributions

Beginning in 2026, under the SECURE 2.0 Act of 2022, anyone who earned more than $145,000 from the same employer in the previous year must make all 401(k) catch-up contributions as after-tax Roth contributions.

That means high earners will lose the traditional upfront tax deduction typically associated with pre-tax catch-up contributions and instead pay tax now, while hoping for tax-free withdrawals later. Until then, older high earners can still choose either a pre-tax or Roth for the extra contributions. Once 2026 rolls around, this change may mean a larger near-term tax bill for those who previously relied on pre-tax deferrals as their primary tax strategy.

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Expect both immediate and future tax changes under this rule

In the short term, high earners will lose the ability to reduce their taxable income through pre-tax catch-up contributions, thereby increasing their tax liability today. Over the long run, though, the strategy shifts: paying tax now for potential tax-free growth via Roth contributions may benefit those who expect higher tax rates or large withdrawals later.

But if your tax rate today is lower than you anticipate in retirement, the change may hurt your net return. High-earners may want to work with a financial professional to run scenarios comparing pre-tax versus Roth and re-evaluate their tax outlook.

What catch-up contributions are and how they work

Catch-up contributions allow individuals aged 50 and over to contribute an additional elective deferral beyond the standard 401(k) or Roth IRA/IRA limit. According to the IRS, the catch-up contribution is an additional amount that is in addition to the regular contribution limit.

For tax year 2025, the standard catch-up contribution for 401(k) plans is $7,500, with higher "super catch-up" limits of $11,250 for those ages 60 to 63. The regular contribution limit is $23,500. For Roth IRAs and IRAs, the standard catch-up limit is $1,000 for those aged 50 and over, while the regular contribution limit is $7,000.

For the 2026 tax year, the IRS announced increases across the board. Individuals can contribute up to $24,500 to their 401(k)s, with the catch-up contribution limit up to $8,000. For IRAs, the annual contribution limit will increase to $7,500, and the catch-up contribution limit will increase to $1,100.

Difference between pre-tax 401(k) and Roth 401(k) contributions

Pre-tax 401(k) contributions reduce taxable income today, with taxes deferred until the funds are withdrawn. After-tax Roth 401(k) contributions mean no tax deduction today, but withdrawals of earnings and principal will be tax-free in retirement.

High-earners facing the new rule must make 401(k) catch-up contributions as Roth contributions, eliminating the upfront deduction. However, when deciding between regular contribution limits, such as pre-tax 401(k) contributions and after-tax Roth IRA contributions, it is essential to compare your current tax rate, expected future tax rate, and the amount of time your investment has to grow.

How to decide between pre-tax 401(k) and after-tax Roth 401(k) contributions

When comparing the two types of contributions, consider access, contribution limits, tax treatment, and flexibility. After-tax Roth contributions allow for tax-free growth and withdrawals in retirement; however, the contribution limits are significantly lower than those for pre-tax 401(k) contributions.

You can also consider contributing a combination of both pre-tax 401(k) and after-tax Roth IRA contributions in the same year for tax diversification. High-earners should think about whether they'll benefit more from upfront deductions or future tax-free growth — especially given the upcoming catch-up rule change.

How to maximize retirement savings

To make the most of your retirement plan, aim to contribute at least 15% of your income annually towards retirement savings as a general rule. High earners may want to prioritize maximizing employer-sponsored plans, utilizing catch-up options if applicable, and balancing tax strategies between pre-tax and Roth contributions.

Consistent contributions combined with disciplined investment choices often yield better outcomes than chasing aggressive returns. Time invested in the market — and tax strategy — usually matters more than trying to time the market.

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Make sure to contribute enough to get the full employer match

Don't overlook the free money your employer may offer through a 401(k) matching contribution. Failing to receive the full match is effectively leaving part of your compensation on the table.

Maximizing this benefit boosts your overall savings capacity, so be sure to contribute at least enough to get the full match before exploring tax-optimization strategies.

Monitor yearly IRS changes

Contribution limits, catch-up limits, and tax thresholds are typically adjusted annually by the IRS, and guidance on implementing these changes may also shift.

Staying updated can help ensure you avoid tax surprises and can optimize timing and contribution mix. High earners should revisit their strategy annually to account for inflation, plan for changes, and stay up-to-date with tax law developments.

Bottom line

This upcoming rule change will affect many older, high-income individuals who rely on pre-tax 401(k) catch-up contributions. With the shift toward Roth classification for catch-ups for those earning more than $145,000 starting in 2026, you may need to adjust your tax-planning, contribution strategy, and savings structure now to ensure your retirement plan doesn't get derailed.

If you haven't already, be sure to review your contributions, calculate the potential tax impact, and align your savings plan now ahead of this upcoming change.

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