New 401(k) Rule 2026: High Earners Face Roth-Only Catch-Up

Starting in 2026, Americans aged 50 and older who earn at least $145,000 will see a major change in how they make extra 401(k) contributions. Under the new rule, these workers will only be allowed to put their catch-up contributions into a Roth 401(k).

This change was created under the Secure Act 2.0, originally set for 2024 but postponed to give employers time to adjust. It is also the first time the tax code requires retirement contributions to be placed in a Roth account.

How Extra 401(k) Contributions Work

Workers aged 50 and older can contribute additional savings on top of the standard 401(k) limit. For 2025, this extra contribution is $7,500, bringing the total limit to $31,000. Employees aged 60 to 63 can add another $3,750, raising their total to $34,750. At age 64, the extra contribution limit returns to $7,500. These amounts adjust each year for inflation, so 2026 limits will be slightly higher.

Starting in 2026:

• Employees who earned less than $145,000 in the previous year can choose to put their extra contributions into either a traditional or Roth 401(k).

• Employees earning $145,000 or more must place all extra contributions into a Roth 401(k).

• If a company does not offer a Roth 401(k), higher-income employees will not be able to make additional contributions.

How Roth 401(k) Contributions Affect Your Taxes

Traditional 401(k) contributions lower your taxable income in the year you make them, but withdrawals in retirement are taxed. Roth 401(k) contributions are made with after-tax dollars, but withdrawals later are tax-free.

The value of using a Roth depends on future tax rates:

• If tax rates rise, Roth withdrawals become more advantageous.

• If tax rates fall, paying taxes upfront could cost more than necessary.

• If rates stay the same, the end result is similar.

Example:
Putting $100 into a traditional 401(k) that doubles to $200 and is taxed at 20% leaves $160. Contributing $100 to a Roth, paying 20% upfront ($80 left), and letting it double to $160 produces the same outcome. The key difference is when the tax is paid.

Retirement income and taxes

While many assume taxes drop in retirement due to lower income, the reality can be more complicated. Required minimum distributions (RMDs), Social Security benefits, and other withdrawals can push retirees into higher brackets than expected.

Advisors describe retirement in three phases:

• Go-go years: Early retirement with higher spending on travel and activities.
• Slow-go years: Reduced spending as lifestyle slows down.
• No-go years: Expenses rise again due to medical costs or mandatory withdrawals.

At age 73, retirees must begin RMDs from pre-tax accounts, which, combined with Social Security, can place many single filers into the 22% tax bracket or higher.

Why the Government Mandates Roth 401(k) Contributions

Roth 401(k) contributions are taxed upfront, providing immediate revenue for federal spending.

Under the 2026 rule, workers 50+ earning $145,000 or more must pay taxes on additional 401(k) contributions now. In return, all future growth and withdrawals from these Roth accounts are completely tax-free, eliminating future tax liabilities on that money.

Also Read: Crypto and Private Equity Now Eligible for 401(k) Investments