Roth Catch-Up Required for High-Income 401(k)s in 2026

The SECURE 2.0 Act continues to reshape retirement planning, and one of its most significant provisions will take effect on January 1, 2026. Higher-income workers aged 50 and older will be required to make their 401(k) catch-up contributions on a Roth (after-tax) basis. This shift has major tax implications for both employees and employers.

What Happened

• Under current rules, workers aged 50+ can make catch-up contributions beyond the standard 401(k) contribution limit.

• Beginning in 2026, if an employee’s wages exceed $145,000 (indexed for inflation) in the prior year, any catch-up contributions must be made on a Roth basis.

• This means contributions will be made with after-tax dollars, and withdrawals in retirement will generally be tax-free.

• Employers and plan administrators have until 2026 (with grace periods possibly extending into 2027) to update plan documentation and payroll systems.

Why It Matters

1. For Employees:

   • High-income earners will no longer be able to reduce taxable income through pre-tax catch-up contributions.

   • Roth catch-ups may increase current-year tax liability but provide long-term tax-free growth.

2. For Employers:

   • Payroll and plan systems must be updated to handle mandatory Roth catch-ups.

   • Employee communications will be critical to avoid confusion and ensure compliance.

3. For Advisors and CPAs:

   • Retirement projections for higher-income clients will need recalibration.

   • Tax strategy shifts may include coordinating Roth contributions with other planning tools like HSAs or taxable brokerage accounts.

Implications for Planning

• Short-Term: Workers may see higher taxable income in years they make catch-up contributions.

• Long-Term: Tax-free withdrawals in retirement could offset today’s higher taxes, depending on future tax brackets and investment growth.

• Strategic Opportunity: CPAs should help clients evaluate whether to accelerate other tax-deferred strategies before 2026.

Looking Ahead

This provision reflects a broader trend: encouraging Roth contributions to front-load federal tax revenue while offering workers tax-free retirement income later. For businesses and advisors, the next 12–18 months should focus on system updates, employee education, and recalibrated tax strategies.

Stay Ahead of Retirement Tax Changes

Retirement tax rules are evolving quickly and missing the details can cost clients thousands.

👉 Try Bizora today to stay on top of retirement and tax law changes and guide your clients with confidence.