Catch-Up 401(k) Contributions Just Changed — and Many Near-Retirees Will Pay More in Taxes

Starting this year, a quiet but significant retirement rule change is catching many older workers off guard. If you are age 50 or older and earn more than $150,000, your 401(k) catch-up contributions may now come with a higher current tax bill.

This change doesn’t mean catch-up contributions are going away—but it does change how they’re taxed and where they must go.

Here’s what’s happening, who it affects, and how to think about it from a planning standpoint.

What are catch-up contributions?

Catch-up contributions are designed to help workers accelerate retirement savings in the final stretch before retirement.

For 2026:

Anyone 50 or older can contribute an additional $8,000 to a 401(k) on top of the standard $24,500 limit.
Workers ages 60–63 get an even larger catch-up allowance of $11,250.

Historically, these catch-ups could be made on a pre-tax basis, just like traditional 401(k) contributions.

That’s where the change comes in.

What changed under the new law?

If you earned more than $150,000 in the prior year (based on W-2 wages from your current employer), all catch-up contributions must now go into a Roth 401(k).

That means:

❌ No upfront tax deduction for catch-up dollars
✅ Tax-free withdrawals in retirement instead

Your regular 401(k) contributions can still be pre-tax or Roth—this rule applies only to catch-up contributions.

Who is affected—and who is not?

You are affected if:

You are 50 or older
You earned over $150,000 last year with your current employer
You make catch-up contributions to a 401(k), 403(b), or government 457(b)

You are not affected if:

You earn under $150,000
You are self-employed (no W-2 wages)
You are making IRA catch-up contributions (IRAs are excluded)
You are newly hired this year and exceeded the threshold at a prior employer (the rule looks back one year with the same employer)

Why this matters for taxes today

For many high-income workers, catch-up contributions have been one of the few remaining ways to reduce taxable income during peak earning years.

Example:

A 60-year-old in the 35% tax bracket
Contributing the full $11,250 catch-up

Before: That contribution could reduce taxable income and save nearly $4,000 in federal taxes.

Now: That same $11,250 goes into a Roth—no deduction, higher adjusted gross income, and potentially:

Phase-outs of other tax benefits
Higher Medicare IRMAA premiums
Exposure to higher marginal tax brackets

This is a real cash-flow and tax-planning issue, not just a technical rule change.

How retirement plans are handling the switch

This is where things can get messy.

Some plans automatically convert catch-ups to Roth
Others require participant consent
If consent is required and you don’t act, your catch-up contributions may stop altogether

In practice, I’m seeing inconsistent communication and a lot of confusion.

Bottom line: Do not assume your plan is handling this correctly. You need to confirm.

What if your plan doesn’t offer a Roth option?

Then you’re out of luck.

If your employer does not offer a Roth 401(k):

You cannot make catch-up contributions if you exceed the income threshold

This alone may warrant a conversation with HR—or a broader discussion about alternative savings strategies.

Should you still make catch-up contributions?

In most cases, yes—but intentionally.

While the loss of the upfront tax deduction hurts, Roth assets provide:

Tax-free income flexibility in retirement
Protection against future tax rate increases
No required minimum distributions from Roth accounts

For many high earners, retirement isn’t about if taxes will matter—it’s when and how much. Having both pre-tax and Roth dollars gives you control.

If the choice is:

Roth catch-up contributions, or
No catch-up contributions at all

The Roth still usually wins.

Why Congress made this change

This provision traces back to legislation passed in 2022. From a policy standpoint, it accelerates tax revenue for the government today to help offset the cost of other retirement and savings incentives.

From a planning standpoint, it reinforces an important theme: Tax diversification is becoming more important than tax deferral alone.

What I recommend doing now

If you’re 50+ and earning over $150,000:

Confirm how your plan handles Roth catch-ups
Check your paystubs to ensure contributions are going where intended
Model the tax impact before blindly maxing out
Coordinate Roth decisions with Medicare, Social Security, and future RMD planning

This rule may increase today’s tax bill—but with the right strategy, it can still strengthen your long-term retirement plan.

If you’re unsure how this applies to your situation, this is exactly the type of planning issue that benefits from a coordinated tax and retirement strategy—not a one-size-fits-all answer.

By James Blue, Fee-Only Advisor | Blue Advisors

James Blue is the founder of Blue Advisors, a fee-only financial planning and investment management firm based in Columbus, Ohio.

This content is provided for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. The views expressed are those of the author as of the date published and are subject to change without notice. Blue Advisors is a fee-only registered investment advisory firm. Advisory services are offered only pursuant to a written advisory agreement and to clients in the State of Ohio, the Commonwealth of Pennsylvania, and other jurisdictions where Blue Advisors is properly registered or exempt from registration. Past performance is not indicative of future results. Readers should consult with their financial advisor, tax professional, or attorney before making financial decisions.