Beginning in 2026, a key break that many older, higher-earning workers have relied upon will disappear. Under new IRS rules implementing the SECURE 2.0 Act, individuals age 50 or older who earned more than $145,000 from a single employer in the prior year must now make their 401(k) catch-up contribution on a Roth (after-tax) basis—meaning the contribution will no longer be tax-deferred. In this post, we discuss the pros and cons of this change. We also provide some suggestions on what you can do to adapt to the change in your catch-up contribution, including using a free online financial planning calculator.
Benefits from this change in your catch-up contribution
- Tax-free growth and withdrawals: The employee must make the catch-up contribution with after-tax income. But the retiree doesn’t pay taxes on future growth or qualified withdrawals from the Roth portion. So, using these funds can help avoid pushing a retiree into a higher marginal tax bracket.
- No required minimum distributions (RMDs): Roth funds offer more flexibility in retirement. Thus, there are no forced distributions, so these funds can continue to grow tax-free longer.
- Tax certainty: You know the tax cost now, which may reduce surprises later if tax rates rise. This certainty can help avoid other retiree expenses that higher taxable income can trigger, like the Income-Related Monthly Adjustment Amount (IRMAA) surcharge.
Cons from this change in your catch-up contribution
- Loss of an immediate deduction: High earners lose the ability to deduct their catch-up contribution from current income. So, for someone in a high tax bracket, this change could mean paying more in tax now.
- Possible reduction of take-home pay: Since you pay taxes on your catch-up contribution now, your take-home pay may shrink.
- No Roth option → no catch-ups: If your employer’s 401(k) or 403(b) plan lacks a Roth option, you may not be able to make a catch-up contribution at all under the new rules.
Next Steps
To start, one can check their employer’s retirement plan options to see if a Roth option exists. If your employer’s plan doesn’t currently permit Roth contributions, you can ask your retirement plan administrators to add the option so employees can continue to make catch-up contributions.
Another step is to run some tax projections. ETFMathGuy offers a free calculator to simulate future values of retirement savings. It includes future contributions into a combination of tax-deferred, Roth, and taxable accounts.
Big Picture
The shift in 2026 marks a significant change for older, higher-earning workers who count on catch-up contributions for late-stage retirement savings. The removal of tax deferral is a tradeoff—pay tax now, but get more tax-free growth later. For many, the right path will be a mixed strategy, careful planning, and flexibility.
