401(k) catch-up contributions: Big 401(k) alert: High-income Americans 50+ may lose crucial tax breaks soon

The IRS is making new rules that will take away a popular retirement tax break for some high earners aged 50 and older. Starting in 2027, though some workplace plans could apply it as early as next year, workers aged 50+ who earned more than $145,000 last year must put their catch-up contributions into a Roth (after-tax) account, not a pretax account.

Until now, workers could choose between Roth and pretax contributions for catch-ups if their workplace plan allowed it. This choice is now removed for high earners. Some reports say that high earners whose workplaces don’t have Roth accounts might not be allowed to make catch-up contributions at all under the new rules.

Roth 401(k) rules

Catch-up contributions let people aged 50 and older put extra money into their 401(k) or other work retirement accounts. In 2025, the normal 401(k) limit is $23,500, the catch-up limit is $7,500, and workers aged 60-63 can add a “super” catch-up of $11,250.
If you earned less than $145,000 last year, you can still choose between pretax and Roth for catch-ups. If you earned more than $145,000, all catch-up contributions must go to Roth. Pretax contributions lower your taxes now, which helps if you earn a lot. Roth contributions don’t lower taxes today, but the money grows tax-free and you don’t pay taxes when you take it out in retirement.

Retirement tax changes

Roth contributions have some benefits: they help diversify your tax strategy, giving a mix of taxable and tax-free accounts, and tax-free withdrawals could be very useful if tax rates rise in the future. According to a 2024 survey by the Plan Sponsor Council of America, cited by CNN, 93% of workplace plans offer Roth 401(k) options. High earners whose workplaces do not have Roth accounts may lose the ability to make catch-up contributions.

If these changes affect you, it may require a shift in your retirement planning. You can accelerate pretax contributions in the next two years to get tax savings before the new rules apply. Check with your plan administrator to see when your plan will start the changes, as mentioned in the report by Moneywise. You can also revisit your retirement account mix. If most of your savings are pretax, Roth catch-ups give more flexibility. You could use Roth money to reduce taxable income in future years instead of traditional accounts. Reviewing your tax picture with a financial advisor can help. They can test different strategies, like making pretax contributions in 2025-26 and switching to Roth in 2027, to see which gives the best outcome, as per the report by Moneywise. High earners may need to change their retirement plans because of this rule. It’s important to stay updated and start planning your savings now.

FAQs

Q1. Who will be affected by the new 401(k) catch-up rules?

Workers aged 50+ who earn more than $145,000 and want to make catch-up contributions will be affected.

Q2. Can high earners still make pretax catch-up contributions?

No, starting 2027, high earners must put all catch-up contributions into a Roth (after-tax) account.