New Year, new IRS limits letting employees save more in their employer retirement plans. But in January 2026, the new Roth catch-up rules take effect, and it’s complicating the math for many investors. Long-delayed, the rule barring ‘high-earning’ workers age 50+ from making pre-tax catch-up contributions to their 401(k) starts next month.
Tax Hit: No More Pre-Tax Catch-Up 401(k) Contributions
The rules won’t apply to all workers over aged 50 universally, but those impacted must either decide not to make catch-up contributions at all or save after tax in a Roth 401(k). Currently, pre-tax or Roth contributions are allowed.
The new mandatory Roth contribution rules will apply to individuals who satisfy both the following criteria:
- Age: If you will be age 50 or older on December 31, 2026
- Earnings: Your FICA wages in 2025 were greater than $150,000 for the same employer as your current 401(k) (the wage limit will be indexed by inflation annually in future years)
The limits apply to both the regular catch-up and the special catch-up contributions. For employees aged 50 to 59 and 64 and older, the 2026 catch-up limit is $8,000. The special catch-up contribution, $11,250 in 2026, is only for individuals aged 60 to 63. All age-based rules are determined by the participant’s age at the end of the year, not January 1st.
Individuals in this age bracket are usually in their highest earning years, so losing this tax-deferral opportunity is costly. As a simple example, taxpayers in the top 37% federal tax bracket could pay over $4,160 more in tax (per person) if they can no longer shield the special catch-up contribution from income. More if they live in a state with an income tax, as most people do.
Perhaps even more costly, for some taxpayers, the inability to shield this extra income could push people into a higher tax bracket, limit or eliminate certain tax deductions or subsidies, and cause other knock-on effects like higher Medicare Part B and Part D premiums. In the 2025 One Big Beautiful Bill alone, taxpayers could face issues qualifying for the new senior tax deduction, claiming the full state and local tax (SALT) deduction, and fully benefitting from itemizing deductions if pushed into the top federal tax bracket.
Options For Workers Affected By The New Roth Catch-Up Rules
Those affected will need to decide how they want to contribute to their 401(k) next year in light of these changes. Unless you change jobs mid-year (more on that below), workers will have two options:
- Accept the Roth catch-up. Keep making catch-up contributions and accept the shift to after-tax Roth
- Max out pre-tax limits and save outside the plan. Another options is to just max out on regular contributions, $24,500 in 2026, which can still be made pre-tax. Instead of making Roth catch-up contributions, set up recurring transfers to your brokerage account (ideally directly from payroll) and invest the money on your own outside of the plan (or with the help of your financial advisor)
Note for job-changers: individuals who change jobs mid-year may be able to extend pre-tax deferrals. Again, remember the limit applies to workers who earn more than $150,000 in 2025 with the same employer.
Although not an exhaustive list, here are some of the key considerations when making your 2026 401(k) contribution elections.
Option 1: Make Roth catch-up contributions
Pros
- Although funded with after-tax dollars, investments can grow tax-deferred (and often tax free)
- Withdrawals in retirement are tax-free (subject to age and holding period requirements)
- No required minimum distributions during the account owner’s lifetime
- Easiest option
- Limited access to funds and upfront paycheck reduction can be beneficial for those who struggle with saving
Cons:
- Investment options are limited in employer retirement plans
- Rules on when money can be accessed without penalty and other limits for active employees
- Unless you already have significant assets in Roth accounts or plan to convert sufficient funds to a Roth, it may not provide any meaningful tax diversification in retirement and would be another account to manage if funds are later rolled over to a Roth IRA
Option 2: Divert catch-up contributions to a brokerage account
Pros:
- Flexibility to use investment options outside of the 401(k) plan
- Brokerage accounts have no contribution limits or withdrawal rules, which is helpful for those considering early retirement
- Favorable rules for inherited accounts: brokerage assets often receive a “stepped-up” cost basis which effectively wipes out unrealized gains. Further, inherited Roth accounts now must be distributed within 10 years if the beneficiary isn’t a spouse
- For high earners, maxing out a retirement plan usually isn’t enough to maintain a high-income pre-retirement lifestyle in retirement. A brokerage account is usually a key part of building wealth
Cons:
- A brokerage account is a taxable account, so earnings are subject to tax annually and trades and withdrawals may trigger capital gains tax
- The extra effort may not be worthwhile to some workers who don’t already have a brokerage account or a financial advisor to help open an account and invest contributions every pay period
- Without good financial habits, redirecting savings to a brokerage account could promote over-spending for those tempted to access the account for lifestyle needs. There’s also the risk that automatic brokerage contributions are shut off or just never set up in the first place
Decision Time: Make Your 401(k) Elections Now
The new year is right around the corner. Most workers should try to make their 2026 retirement elections before the holidays to ensure they stay ahead of the first January paycheck. When considering which approach is right for you, remember, there’s really only one wrong answer: scrapping the catch-up savings altogether. So whether you decide to shift contributions to a Roth 401(k) or redirect the money to a brokerage account, the important thing is that you’re still saving.
Disclosures
Kristin McKenna is a Forbes contributor. Examples in her articles are generic, hypothetical and for illustration purposes only and should not be misinterpreted as personalized advice of any kind or a recommendation for any specific investment product, financial or tax strategy. This general communication should not be used as the basis for making any type of tax, financial, legal, or investment decision. If you have questions about your personal financial situation, consider speaking with a financial advisor.
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