What Actually Changed?
I hope that the title got your attention.
Starting in 2026, if you are over the age of 50 and made more than $150k in the previous year, your 401k catch up contributions MUST BE ROTH.
No optional. Not strategic. Mandatory Roth.
For years, high wage earners used catch up contributions as a last-minute tax lever. If you got a big bonus or had a great year, you could defer another $8000 and reduce taxable income. Now that lever is going away.
Why This Matters
For many of the families we work with, the catch up was more about tax control than retirement. While having a Roth as an option was desirable, at a 35% federal tax bracket, an $8,000 catch up to a traditional 401k saved roughly $2,800 and, add in state tax, it was a meaningful tool that we could use if needed.
Now the catch up will all be after tax and your tax bill will go up. The government is getting paid now instead of later.
The Shift Toward Roth
For years, we enjoyed loading up 401ks pre-tax at higher tax rates and then strategically converting to Roth later. Now the IRS is forcing that exposure and this might not be the worst thing. Roth assets grow tax free, high earners likely couldn't contribute outside of a plan, and, if you believe tax rates are going up, it's not a tragedy.
For some, this is perfectly fine. For others, it is a tax lever that has been deleted.
Will this affect your cash flow? Should you adjust withholding? Is this altering other conversion plans? Will you need to increase HSA?
Coordination is key.
The Bigger Picture
The government needs revenue. and our retirement accounts are low hanging fruit. Policymakers know this. So instead of eliminating tax deferral outright, they are pushing us to prepaying tax. Subtely and incrementally they are intentionally forcing us to pay now.
But we are still in control of the bigger picture as we control our savings rate, how the assets are invested (mostly), and how and when we can convert what pre-tax plans we do have.
If you want to know how it impacts you, connect with us.