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December 3, 2025
Retirement planning rules are continuing to shift, and for older, higher earning employees, 2026 brings a notable change. New IRS and Treasury guidance tied to the SECURE 2.0 Act alters how 401(k) catch up contributions must be handled for certain workers age 50 and older. At Chubb Law Firm PC in Folsom, we work with individuals and families throughout the Sacramento area to help them understand how evolving tax and retirement rules fit into long term financial and estate planning. Below is a clear explanation of what is changing and why it matters.
Starting in 2026, older high-earning employees will lose a tax-savings perk that has helped them save extra money for retirement. In September 2025, the Internal Revenue Service (IRS) and the U.S. Treasury issued final rules on a 2022 law which stipulates that employees aged 50 and older who make over $145,000 in wages and who put money aside for catch-up contributions will have to make those contributions after taxes, rather than before.
This change means that the affected workers will have to pay taxes on their catch-up contributions upfront during years when they are earning higher wages rather than in their retirement years when their taxable income will be less. Instead of making pretax catch-up contributions to a 401(k), these workers will have to put their extra contributions into a Roth account after taxes. However, the funds can later be withdrawn tax-free.
To help workers who may not have started saving as early as they would have liked or who have not saved as much as they would have liked, catch-up contributions allow them to contribute extra funds to their retirement plans. Employees who are at least 50 years old can contribute an extra $7,500 in addition to the basic $23,500 limit in 2025. For workers who are between 60 and 63 years old, a super catch-up option of $11,250 is available.
These limits are usually adjusted each year to keep up with inflation. The estimated basic contribution limit for 2026 is $24,500 and the estimated catch-up limit is $8,000. The 2025 super catch-up limit of $11,250 is expected to remain the same for 2026.
At the heart of the change is the law known as the SECURE 2.0 Act, which was signed into law by President Joe Biden in December 2022 and built on earlier retirement-savings legislation. The regulations issued earlier this year affect a key part of that law: the “catch-up” contributions rule.
Here is what it means for you if you’re at least 50 years old and your income exceeds the threshold:
In plain language: If you’re a high‐earner (above the threshold) and at least 50 years old, you will no longer get the immediate tax deduction for the extra catch-up contributions. Instead, you pay tax now and your qualified withdrawals in retirement from that Roth portion will be tax-free.
For years, the pretax model has been the dominant route: You put money into the retirement plan, you get a tax deduction (by reducing your taxable income now), the money grows tax-deferred, and you pay tax when you withdraw in retirement. This new rule flips that for a subset of savers.
This change will affect employees who are 50 and older, made at least $145,000 in the previous tax year, and are making catch-up contributions to a 401(k) fund. The catch-up contributions will now need to be placed into a Roth account and pay taxes on those contributions now. However, high earners whose employers don’t offer a Roth 401(k) likely won’t be able to make catch-up contributions.
This rule change doesn’t mean you should stop making catch-up contributions if you are eligible. But it does mean you should review your strategy. Here are some tips.
If you’re over 50 and anticipate making catch-up contributions, determine whether your employer’s retirement plan offers a Roth 401(k) or Roth catch-up option. If you expect to exceed the income threshold, you’ll want the Roth option available, or you may lose the ability to make catch-up contributions.
If you are a high earner, your catch-up funds must be placed into a Roth and you’ll pay tax now rather than later. Ask yourself: Is your current tax rate likely higher or lower than it will be in retirement? If your tax rate is high now, paying tax up front may sting. But if you expect to be in a similar or higher tax bracket in retirement, Roth contributions may make sense.
Even if you’re below the threshold and can still choose between pretax and Roth for catch-up contributions, you might consider splitting your contributions. That way you hedge against uncertainties in future tax rates and policy changes. A mix of pretax and Roth can provide flexibility in retirement.
Paying tax now may increase your adjusted gross income, which can affect eligibility for deductions, credits, or Medicare and Medicaid subsidies. Make sure the extra Roth contributions don’t push you into undesirable tax territory.
For savers over 50 years old, the catch-up limits are meaningful. For example, the standard catch-up limit for 2025 is $7,500 on top of the base limit. Also, for those between ages 60 and 63, there is the higher “super catch-up” option noted above. If you have the capacity, it may be wise to contribute as much as your employer’s plan allows.
If you put money into Roth catch‐ups now, qualified withdrawals later (for Roth 401(k) funds) will be tax-free if the relevant rules are met. That can be a major plus if you expect higher tax rates or large retirement income. On the other hand, if you do pretax contributions now, you get the deduction now but may face future tax exposure.
This rule change is one piece of a broader retirement-savings landscape, so use it as a prompt to review your goals, expected retirement timeline, tax planning, and other savings vehicles, such as IRAs and brokerage accounts.
Because the interplay of high incomes, tax brackets, Roth versus traditional contributions, and plan design is complex, it often pays to get tailored advice.
If you’re 50 or older and in a high-income bracket, the new rule means the familiar tax deduction for extra catch‐up contributions to your 401(k) may vanish and you’ll be required to make those extra contributions to an after-tax Roth account. That doesn’t mean you should stop contributing – on the contrary, using the catch-up opportunity is still a smart way to accelerate retirement savings. But you do need to rethink how you’re doing it, because the tax trade-off is different.
By checking your employer’s retirement plan for the Roth option, estimating your tax situation now versus retirement, and balancing your contributions between pretax and Roth, you can adapt and possibly come out ahead. The key is awareness and proactivity.
This update does not eliminate the ability to make catch up contributions, but it does change the tax treatment for many higher earning savers. Reviewing how Roth contributions, income thresholds, and long term tax planning work together can help you adjust your strategy before the new rules take effect. If you would like guidance on how this change fits into your overall retirement or estate plan, Chubb Law Firm PC is here to help. Call (916) 241-9661 to schedule your Discovery Call.
For additional reading on topics related to planning for retirement, check out the following articles:
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