明年開始，for higher earner, catchup 401k隻能用稅後的錢，ugh

One of the biggest retirement-saving perks for workers age 50 and older is about to get new restrictions.

Starting next year, the extra catch-up contributions that those workers use to stow money in their 401(k)s will have to go into their accounts after tax for high earners. The Internal Revenue Service issued final rules this month on a 2022 law, which set the threshold for a high earner at more than $145,000 in wages.

This change means many workers will pay taxes on their catch-up money upfront during high-earning years instead of in lower-earning years in retirement. The money would go into a Roth account, where it can later be withdrawn tax-free. 

It is the first time the tax code is mandating Roth savings, which give the government its cut up front.
 

A 60-year-old in the 35% tax bracket could lose a nearly $4,000 deduction for an $11,250 super catch-up contribution. That raises adjusted gross income, which could disqualify people from other tax breaks that phase out at higher income levels, such as deductions for student-loan interest and for state and local taxes. It could also push these workers into higher tax brackets.

The worst-case scenario is for high earners who don’t have access to a Roth 401(k). They won’t be able to make catch-up contributions at all.

How 401(k) catch-up contributions work

Savers age 50 and older can contribute an extra $7,500 on top of the basic $23,500 limit for 2025. A special super catch-up option allows people between 60 and 63 years old to increase their catch-up contribution to $11,250.

These limits are generally adjusted for inflation each year. For 2026, the catch-up limit is estimated to be $8,000 and the basic limit $24,500, according to Milliman, an actuarial firm. The super catch-up limit of $11,250 is expected to stay the same.

How the $145,000 threshold works

The $145,000 threshold for losing the pretax catch-up option is based on the employee’s prior-year income. It is also indexed for inflation. That would mean, according to Milliman’s estimates, someone with more than $150,000 of wage income this year at one job would be limited to making Roth catch-ups next year.

The threshold applies separately to each employer the person works for. So a high earner who works two jobs could make pretax catch-ups in 2026 if their 2025 wages are under the threshold at either or both employers, said Nina Lantz, director of employee-benefits research at Milliman.
 

Since the wage limit looks back to the previous year at the same employer, new employees could get a free pass from the mandatory Roth requirement in the first year or two, said Ian Berger, an individual-retirement-account analyst with Ed Slott & Co. in Rockville Centre, N.Y. 

The Roth catch-up mandate also won’t apply to high earning self-employed people who don’t have traditional wages from an employer. They will be able to continue making pretax 401(k) catch-ups.

What if your 401(k) doesn’t have a Roth option?

Plans aren’t required to offer a Roth 401(k) option, though employers have been scrambling to add it. Among Fidelity-managed 401(k)s, 95% offer a Roth, up from 73% two years ago. Among Vanguard-managed 401(k)s, 86% offer a Roth.

If a 401(k) doesn’t offer Roth contributions, high earners would be shut out from making catch-ups.

When older high-paid employees who get shut out start complaining, more plans will likely offer the feature, Berger said.

Are there benefits to a Roth?

Employees favor the upfront tax deduction that comes with the pretax 401(k). Ninety-six percent of participants in Vanguard-managed plans are offered a Roth, but only 18% of them use it.

While the Roth mandate looks harsh, for some savers it could be beneficial. “While they’re paying tax on the money today to put it in the Roth, they’ll have a tax-free retirement income stream,” says Joseph Perry, a certified public accountant with CBIZ Advisors in Melville, N.Y. 

The law change could be an opportunity for savers to re-examine investments, he said. People often spread their savings among pretax, Roth and nonretirement brokerage accounts. (With brokerage accounts, interest income, dividends and capital gains are taxable.)
 

Many high earners have too much in pretax accounts, and are trying to save more in Roth, Perry said. 

“Maybe it’s not just the catch-up contributions that should go in the Roth. Maybe it’s your whole 401(k),” he said.