Big 401(k) Change in 2026: Catch-Ups Going Roth

A big change is coming in 2026 that will affect how many higher-earning people save for retirement.

Starting January 1, 2026, a new rule from the SECURE 2.0 Act will change how catch-up contributions work.

To be clear, we are talking about the extra amount that people over age 50 can contribute to their 401(k), 403(b) and 457(b) accounts.

What is the new rule?

The core change is straightforward.

If you are 50 or older and your prior-year wages from your employer exceeded $145,000, all of your catch-up contributions for the current year must be made on an after-tax Roth basis.

If you are less familiar with the topic, the catch-up contributions can be as high as $7,500 per year for those over the age of 50.

Please note that additional “super catch-up” contributions (up to $11,250 for ages 60 to 63) will also be impacted by the new rules.

Affected high earners will lose the option to make these extra savings with pre-tax dollars.

This means you will no longer receive an immediate tax deduction for your catch-up contributions.

Here is what’s interesting.

If your employer's plan does not offer a Roth 401(k) option and you fall into this high-earner category, you may be prohibited from making any catch-up contributions until the plan adds the Roth feature.

This is driving many companies to update their offerings quickly. I even spoke with one business owner who is updating her company’s plan now.

Speaking of contributions, you may not be aware of the pros and cons of Roth vs. pre-tax contributions.

Let me explain.

Pre-Tax (Traditional) Contributions

When you choose pre-tax, you get the tax break now.

Your contributions are deducted from your taxable income, lowering your current tax bill.

You are essentially betting that your tax rate today is higher than it will be in retirement.

The trade-off is that all of your withdrawals in retirement will be taxed as ordinary income.

In my opinion, for those in higher tax brackets such as 32%, 35%, and 37%, a pre-tax contribution to your 401(k) has a more meaningful impact on your plan. 

Once you consider your state taxes, you are essentially saving over 40 cents or more in taxes on each dollar contributed to your traditional 401(k).

Roth (After-Tax) Contributions

When you choose Roth, you pay the tax now.

Your contributions are made with money that has already been taxed, so you get no immediate deduction.

You are betting that your tax rate today is lower than it will be in retirement.

The powerful benefit is that your money grows tax-free and all withdrawals in retirement are entirely tax-free.

If you are in the middle tax brackets such as 22% to 24% or lower, a Roth 401(k) contribution can be the right choice for you.

There are, of course, other nuances to consider before deciding what works best for you. I will keep this for a separate newsletter.

Special Considerations for Solo 401(k) Account Owners

We manage solo 401(k) accounts for many of our clients, so I wanted to spend some time on how this change impacts them.

The $145,000 income threshold in the SECURE 2.0 Act applies specifically to wages reported on a W-2.

Since self-employed individuals typically report self-employment income on Schedule C, not W-2 wages, they fall outside the scope of this rule.

In other words, if you’re a sole proprietor or single-member LLC, you can continue making your catch-up contributions on either a pre-tax or Roth basis.

There’s one important exception. 

If your business is structured as an S-corporation and you pay yourself W-2 wages, those wages do count toward the $145,000 threshold. 

In that case, if your wages exceed the limit, your catch-up contributions will have to be made to a Roth 401(k) starting in 2026.

Here is the bottom line.

For most solo 401(k) owners, nothing changes yet.

But if you operate under an S-corp, it’s worth checking whether your plan already allows Roth contributions.

If not, you may want to review your plan documents well before 2026 to avoid any disruption in your ability to make catch-up contributions.

So what does this mean for you?

If you are a high earner nearing age 50 or beyond, you should look into this now.

Check with your HR department or plan administrator to ensure your retirement plan offers a Roth option, so that you can continue to make catch-up contributions in the new year.

At the very least, you’ll want to prevent some unpleasant surprises.