A Quiet 401(k) Change That Could Raise Your Tax Bill in 2026

A significant change to retirement savings rules quietly took effect this year, and many higher-income workers have no idea it applies to them.

If you are over age 50 and earn more than $150,000, your catch-up contributions to a 401(k), 403(b), or government 457(b) plan may now be required to go into a Roth account rather than a traditional pretax account. That shift can materially change your tax picture during what is often your peak earning decade.

Even more concerning, some employer retirement plans require participants to actively consent to this change. If they do not, catch-up contributions can be suspended entirely.

Here is what this change means and what you should do about it.

What Are Catch-Up Contributions?

The IRS allows workers age 50 and older to make additional retirement contributions beyond the standard annual limit. These are called catch-up contributions and are designed to help people accelerate savings later in their careers.

For 2026:

• The standard 401(k) contribution limit is $24,500.
• Workers age 50 and older can contribute an additional $8,000.
• Workers ages 60 through 63 can contribute up to $11,250 as a catch-up.

These amounts are in addition to regular contributions and can meaningfully boost retirement readiness.

Who Is Affected by the New Roth Requirement?

The Roth catch-up requirement applies if:

• You are eligible for catch-up contributions, and
• Your prior-year wages with your current employer exceeded $150,000.

A few important nuances:

• The income test looks at W-2 wages from the same employer, not household income.
• Someone newly hired by a high-paying employer may still be eligible for pretax catch-ups in their first year.
• Self-employed individuals are exempt because they do not receive W-2 wages.
• The rule applies to 401(k), 403(b), and government 457(b) plans.
• It does not apply to IRAs.

How Roth Catch-Ups Change the Tax Equation

With a traditional 401(k), contributions reduce your taxable income today, and withdrawals are taxed in retirement.

With a Roth 401(k), contributions are made with after-tax dollars, but future withdrawals are tax-free if rules are followed.

For higher earners, losing the pretax deduction on catch-up contributions can:

• Increase current-year taxable income
• Push adjusted gross income higher
• Impact eligibility for other tax benefits
• Increase Medicare premium exposure in future years

At the same time, Roth dollars provide long-term flexibility, tax-free income, and are not subject to required minimum distributions during your lifetime.

This is not inherently good or bad. It is a tradeoff that needs to be intentional.  And frankly, a tradeoff that I think will help many in the long-term.

What Do You Need to Do If You Are Affected?

This is where many people get tripped up. 

Employer retirement plans are handling the rule differently:

• Some plans automatically redirect catch-up contributions to Roth.
• Other plans require participants to actively consent.
• If consent is required and you do nothing, catch-up contributions may stop altogether.

Action steps:

1. Log into your 401(k) portal and review your contribution elections.
2. Confirm whether your plan automatically converts catch-ups to Roth or requires consent.
3. Monitor paystubs to ensure contributions are landing where you expect.
4. Coordinate this decision with your broader tax planning strategy.

If your plan does not offer a Roth 401(k), you may be unable to make catch-up contributions at all.

Should You Still Make Catch-Up Contributions If They Must Be Roth?

For many clients I work with, this is a “yes”, however, you should understand the tax impact.

 For example, someone age 60 in a high marginal tax bracket may have previously saved several thousand dollars in current taxes by making pretax catch-up contributions. That immediate benefit is now gone.

However, Roth contributions still offer:

• Tax-free income later in retirement
• Protection against future tax rate increases
• Flexibility in years when other income would trigger higher taxes or Medicare premiums
• No required minimum distributions during your lifetime

For many people, the choice is not between pretax and Roth catch-ups. It is between Roth catch-ups or no catch-ups at all. In that case, continuing to fund the Roth often makes sense.

Why Did Congress Make This Change?

This rule was part of retirement legislation passed in 2022. Requiring higher earners to use Roth catch-ups generates immediate tax revenue, which helped offset the cost of other retirement enhancements included in the law.

Bottom Line

This is one of those changes that seems small on paper but can have real consequences if ignored.

If you are over 50, earn more than $150,000, and are making or planning to make catch-up contributions, this is worth a closer look. The right decision depends on your tax bracket, retirement timeline, other savings, and long-term planning goals.

As always, the goal is not to chase tax breaks in isolation, but to build a coordinated plan that balances taxes today with flexibility tomorrow.

If you are unsure how this fits into your broader retirement and tax strategy, that is a good conversation to have sooner rather than later.