Some workers can put thousands of extra dollars into their 401(k) as retirement approaches. Starting in 2026, however, higher earners face a change that could make those extra contributions more expensive on payday. A new rule under the SECURE 2.0 Act requires certain workers to make their 401(k) catch-up contributions on a Roth basis. That means they must pay income taxes on the money before it enters their retirement accounts, rather than receiving the upfront tax break that traditional 401(k) contributions provide.
The change doesn’t eliminate catch-up contributions or reduce the amount eligible workers can save. It changes how the government taxes those dollars today, potentially affecting take-home pay and retirement planning.
And the surprising part? Your household income isn’t what determines whether the rule applies.
The $150,000 Number That Determines Who Gets Caught
The new requirement targets employees who meet two conditions. They must qualify for catch-up contributions, generally by turning 50 or older during the year. They must also have earned more than $150,000 in qualifying wages from the employer sponsoring their retirement plan during the previous year.
For 2026 contributions, that means employers look at qualifying wages from 2025. The IRS adjusts the original wage threshold for inflation, so the applicable figure for 2026 is $150,000. Earning exactly $150,000 does not trigger the requirement. Your wages must exceed that amount.
There is another wrinkle that could surprise workers who changed jobs. The calculation generally uses wages from the employer sponsoring the plan, not combined household income or everything earned throughout the year. A spouse’s salary doesn’t count, and wages from an unrelated former employer generally don’t count either. The IRS bases the calculation on Social Security wages reported in Box 3 of Form W-2, rather than simply using adjusted gross income or the federal taxable wages figure in Box 1.
Consider someone who earned $165,000 at their current employer in 2025. If that person turns 50 or older in 2026 and qualifies for catch-up contributions, the new Roth requirement applies. Someone earning $145,000 at the same employer generally can continue making traditional, pretax catch-up contributions if the plan permits them.
What Changes When Catch-Up Money Goes Roth?
Traditional and Roth 401(k) contributions follow different tax schedules. Traditional contributions generally reduce federal taxable income in the year workers make them. The account grows tax-deferred, and withdrawals generally count as taxable income during retirement.
Roth contributions work in reverse. Workers pay income taxes on the money before contributing it, but qualified withdrawals later come out tax-free, including investment earnings. That arrangement can appeal to people who expect higher taxes in retirement. However, it also means less take-home pay today compared with an equivalent pretax contribution.
Suppose an eligible worker wants to contribute the full $8,000 catch-up amount in 2026. Under the new requirement, that money must enter the Roth portion of the account. The worker cannot simply direct those catch-up dollars into the traditional 401(k) to reduce current taxable income. Regular contributions can still go into a traditional account if the employer’s plan offers that option.
The tax change doesn’t mean the entire retirement contribution suddenly becomes Roth. Only the catch-up portion must follow the Roth treatment for affected workers. That’s a useful distinction for employees who already divide their contributions between traditional and Roth accounts.
Catch-Up Limits Are Getting More Generous, Too
There is an interesting twist to this change: The government is requiring Roth treatment for certain workers while allowing them to contribute more money overall.
For 2026, the regular 401(k) employee contribution limit rises to $24,500. Workers age 50 or older can contribute another $8,000 through catch-up contributions, bringing their potential total to $32,500. These limits assume the employer’s plan permits the additional contributions and the worker has enough eligible compensation.
Workers who turn 60, 61, 62, or 63 during 2026 get an even larger opportunity. Their catch-up limit rises to $11,250 instead of the standard $8,000. That allows eligible workers in this age group to contribute as much as $35,750 to their 401(k) through employee salary deferrals.
These higher limits create room for people approaching retirement to accelerate their savings. Still, someone subject to the Roth requirement must make the applicable catch-up portion with after-tax dollars. A larger contribution allowance doesn’t automatically translate into a larger immediate tax deduction.
Your Employer’s Plan Could Complicate Things
The rule also creates some homework for employers and retirement plan administrators. A 401(k) plan needs to accommodate Roth catch-up contributions to let affected employees continue making them. Plans that already offer Roth 401(k) accounts may have an easier transition, but workers shouldn’t assume their payroll settings will automatically reflect the change.
The IRS issued final regulations in 2025, but those regulations generally apply beginning in 2027. For 2026, employers can rely on a reasonable, good-faith interpretation of the statutory requirements. Certain governmental and collectively bargained plans also have later implementation dates. This transition period helps explain why employees may receive different instructions from their plan administrators.
Workers approaching the catch-up contribution age should check their plan’s Roth options and payroll procedures. Someone who routinely increases contributions late in the year might also want to review how the employer identifies catch-up dollars. A payroll system that automatically redirects eligible contributions could produce a different paycheck than expected. A quick conversation with the plan administrator can clarify how the employer handles the transition.
Retirement Savings Now Come With a Different Tax Decision
The new requirement doesn’t punish every worker earning more than $150,000, and it doesn’t take away the ability to save extra for retirement. It changes the tax treatment of a particular slice of retirement contributions for qualifying employees. Workers below the wage threshold can generally retain the traditional pretax option for catch-up contributions, assuming their plans offer it.
For higher earners, the adjustment deserves attention before contribution elections begin. Paying taxes now could prove worthwhile for someone who values tax-free qualified withdrawals later. Someone who prefers the immediate deduction from traditional contributions may feel differently. Neither account type guarantees a better financial outcome, since future tax rates and individual circumstances vary. A retirement plan statement rarely makes for exciting reading, but checking its contribution settings could prevent an unpleasant surprise on a future paycheck.
Will the new Roth requirement change how much you contribute to your 401(k), or would you rather keep the traditional tax break?
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Brandon Marcus is a writer who has been sharing the written word since a very young age. His interests include sports, history, pop culture, and so much more. When he isn’t writing, he spends his time jogging, drinking coffee, or attempting to read a long book he may never complete.
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