A new rule issued by the IRS will alter how higher-income Americans approaching retirement can save in their 401(k) and other tax-deferred workplace retirement plans. The regulation comes from the SECURE 2.0 Act of 2022 and is scheduled to take effect at the start of the 2026 tax year.
According to reporting by CNN, the change introduces new conditions on catch-up contributions for individuals who earned $145,000 or more in the prior year. These contributions will be redirected into Roth accounts rather than traditional pre-tax options, signaling a shift in how retirement savings are taxed for a specific group of workers.
Changes Target Catch-Up Contributions for Workers Over 50
Currently, workers aged 50 and over are allowed to make catch-up contributions to bolster their retirement savings beyond the standard IRS limits. For the 2025 tax year, the contribution caps are as follows:
- Up to $23,500 in regular contributions for workers under 50
- An additional $7,500 in catch-up contributions for workers 50+
- A higher catch-up limit of $11,250 for those between ages 60 and 63, if permitted by their employer
These thresholds are adjusted annually for inflation. Until now, these catch-up contributions could be made to either pre-tax traditional 401(k) accounts or after-tax Roth 401(k) accounts, depending on employee preference and plan availability.
But from 2026 onward, workers over 50 who earned more than $145,000 the prior year will be required to make all catch-up contributions as Roth contributions, eliminating the pre-tax benefit.
You’ll owe more taxes to the federal government now because you lose pre-tax treatment on those contributions – said Brigen Winters,
A principal at Groom Law Group, which advises employers on retirement plans. Put more plainly, Angela Capek, Senior VP at Fidelity Investments, added:
Your take-home pay could be reduced.
Roth 401(k) Access and Plan Availability Could Block Contributions
The catch? Not all retirement plans offer a Roth 401(k) option, which creates a serious issue for affected workers. If your employer’s retirement plan does not provide a Roth feature, you simply won’t be allowed to make catch-up contributions at all—regardless of age or income level.
This aspect of the rule applies even to those over 50 who previously qualified for the catch-up benefit. The IRS has clarified that employers must provide Roth functionality in their retirement plans for affected workers to continue making additional contributions.
Fortunately, adoption of Roth 401(k)s is increasing:
- According to Fidelity, 95% of its managed plans included a Roth option in 2024, up from 73% two years earlier
- Vanguard reports 86% of its 401(k) plans now offer Roth features
- Data from the Plan Sponsor Council of America shows that 93% of all employer-sponsored retirement plans offer Roth 401(k) access
Even so, that leaves thousands of workers—particularly in small or legacy plans—potentially excluded from making any catch-up contributions if their employer doesn’t update their plan in time.
The new rule also applies to a broader list of tax-deferred retirement plans, not just the 401(k). It includes:
- 403(b) plans (for public school employees and nonprofits)
- 457(b) plans (for government workers)
- SEP IRAs (Simplified Employee Pension plans)
- SIMPLE IRAs (Savings Incentive Match Plans for Employees)
These plans must also support Roth contributions for catch-up rules to apply going forward.
