IRS Cuts 401(k) Pretax Catch-Ups for High Earners Over 50

Starting in 2026, workers aged 50 and older who earned over $145,000 in the previous year will be required to make their 401(k) catch-up contributions on a Roth (after-tax) basis, ending the ability to make these contributions pre-tax for high earners. This change, mandated by the SECURE 2.0 Act of 2022 and finalized by the IRS, aims to raise near-term federal revenue and promote tax-free retirement balances over time, marking the first time Roth contributions are mandated by tax law. While the shift means high earners will pay taxes upfront on these additional contributions, they benefit from tax-free growth and withdrawals in retirement, though it could also push their taxable income higher, potentially affecting other tax breaks or brackets. Not all 401(k) plans offer Roth options yet, which may prevent some workers from making catch-up contributions until their employer updates the plan. This policy reflects a bipartisan effort to curb tax advantages for top earners and address income inequality, with some financial advisors viewing it as a prompt to reconsider tax planning strategies. New employees at a company may initially avoid the Roth requirement due to the look-back on prior-year wages.