Catch-up contributions go Roth-only for older, high-income savers in 2026

One of the most valuable benefits for retirement savers age 50 and older is about to change. Starting in 2026, workers earning more than $145,000 will not be able to make pre-tax catch-up contributions to their 401(k), 403(b), or 457(b) plans. Instead, those extra dollars, up to $7,500 in 2025, must go into Roth accounts, using after-tax money for tax-free withdrawals in retirement.

The Internal Revenue Service completed the rules this month, closing one of the last tax-deferral options for late-career professionals with high incomes. While contribution limits stay unchanged, the shift will affect retirement planning strategies, payroll systems, and household tax bills.

Catch-up contributions were created to help older workers boost their retirement savings as they near the end of their careers. For 2025, the base limit for employee 401(k) contributions is $23,000, with an added $7,500 for those 50 and older. This option lets mid- to late-career workers save more at a stage when they may finally have the income to do so.

Until now, participants could decide whether to make those contributions on a pre-tax basis, lowering their current taxable income, or on a Roth basis, paying taxes now but reaping tax-free withdrawals later. High earners will soon lose that flexibility.

New catch-up rules to accelerate taxes

For workers earning above $145,000, the new rule accelerates their tax bill. Instead of reducing income today, catch-up contributions will add to taxable earnings in the year made. This hits hardest for those in peak-earning years when marginal tax rates are highest.

“Beginning in 2026, workers aged 50 and older earning more than $145,000 in prior-year wages will be prohibited from making pre-tax catch-up contributions,” explained Prof. Chad D. Cummings, CEO of Cummings & Cummings Law. “This change will immediately increase current year adjusted gross income and federal tax liability for precisely the demographic least positioned to absorb it.”

Cummings also warned that retirement plans not equipped with Roth functionality will be unable to accept any catch-up contributions for high earners, exposing employers to potential compliance risks.

The operational burden is real. Payroll systems and plan administrators must track which employees cross the $145,000 threshold. Plan sponsors also need to ensure Roth options are available, update plan documents, and provide clear disclosures to participants. Any delay could expose employers to IRS penalties or litigation.

Plans might struggle with Roth mandate

The law’s fine print means plans covering multiple entities or those with weaker payroll systems may struggle to find who falls into the “Roth-mandated” category. This is likely to cause growing pains in 2026.

For employees, the rule removes a favored strategy of deferring income into retirement years, especially for those planning to move to lower-tax states.
“This shift destroys the long-standing strategy of deferring tax into retirement years when income is lower and withdrawals occur in zero-income tax states such as Florida or Texas,” Cummings said.

Still, some advisers note there are alternatives. California CPA Steven Cashiola suggested three approaches: funding a Health Savings Account, maximizing pre-tax savings through a spouse’s plan if available, or investing through a taxable brokerage account with tax-efficient strategies. None are perfect substitutes, he noted, but they provide options for those seeking continued tax-deferred growth.

HSA access expanded

The broader legislative package also expanded access to Health Savings Accounts, which may serve as a complementary tool.

Scott Cutler, CEO of HealthEquity, called it “the biggest expansion of HSAs in over 20 years,” noting that millions more Americans with marketplace health plans will soon become eligible. HSAs allow tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses—an advantage that could ease the sting of losing pre-tax retirement contributions.

While rules around catch-up contributions attract technical debate, the bigger picture is spending discipline. For high-income households spending aggressively, an extra $7,500 in retirement savings is unlikely to close the gap. Expense control and a sustainable plan matter more than any single tax rule.

The changes are not expected to reduce the overall ability of older workers to save for retirement, as the limits are still intact, but they do force high earners to face higher current-year taxes and new planning dynamics. For those affected, 2025 will be the final year to make pre-tax catch-up contributions before the Roth-only mandate begins.

For employers, the clock is ticking to update systems and ensure compliance. For employees, the message is clear: understand how the new rule affects your take-home pay, consider alternatives like HSAs or spousal contributions, and watch your spending habits.

As the retirement landscape shifts, catch-up contributions are still a critical tool, but how they work and who benefits is changing in ways that will reshape planning for years to come.

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