Over 50 and Earning Over $150,000? New Law Forces 401(k) Catch-Ups into Roth Accounts

A new IRS rule taking effect this year is stripping higher-earning older Americans of a long-held retirement tax benefit, and many are unaware of the change.

Starting 1 January 2026, workers aged 50 and over who earned more than $150,000 (£111,329) in FICA wages last year must now direct their 401(k) catch-up contributions into Roth accounts rather than traditional pretax accounts. This change eliminates the upfront tax deduction that has historically helped this group reduce their taxable income during their highest earning years.

'It's going to materially affect this group of people,' Matthew Petersen, executive director of the National Association of Government Defined Contribution Administrators, told The Wall Street Journal. 'Yet few employees know it's happening.'

What This Means for Your Tax Bill

The financial impact could be significant. According to The Wall Street Journal, a 60-year-old in the 35% tax bracket who contributes the full 'super catch-up' limit of $11,250 (£8,350) to a traditional 401(k) could previously deduct that amount from taxable income, saving nearly $4,000 (£2,969) in taxes. Under the new rule, that deduction disappears entirely.

For 2026, the IRS confirms workers aged 50 and above can contribute up to $8,000 (£5,938) above the standard limit of $24,500 (£17,813). Those aged 60 to 63 qualify for the enhanced 'super catch-up' provision of $11,250 (£8,350), bringing their total potential contribution to $35,750 (£26,533).

The wage threshold is based on the prior year's FICA wages from the current employer, as reported on Box 3 of the W-2 form. According to BOK Financial data, approximately 10% of American individual earners exceed this threshold, placing them directly within the scope of the new mandate.

Some Workers Could Lose Catch-Up Access Entirely

The consequences become more severe for employees whose retirement plans do not offer a Roth option. Under IRS guidance, high earners in such plans cannot make any catch-up contributions at all, neither pretax nor Roth.

Vanguard data cited by The Wall Street Journal shows that 86% of 401(k) plans it administered in 2024 offered a Roth option, up from 74% in 2020. However, roughly one in seven plans still lack the feature, potentially locking out their highest-paid older workers from catch-up savings altogether.

Action Required: Check Your Plan Now

How the transition unfolds depends entirely on your employer's approach. Some retirement plans are automatically switching high earners to Roth catch-up contributions. Others require employees to consent to the change; failure to act could mean catch-up contributions are suspended without warning.

Rob Austin, head of thought leadership at Alight Solutions, a 401(k) administrator serving over 200 large plans, recommends workers check with their plan administrator immediately to determine whether consent is required.

About two-thirds of 401(k)-type plans using Vanguard as an administrator are requiring higher earners to take action if they wish to continue making catch-up contributions, The Wall Street Journal reported. Conversely, most plans using Fidelity Investments are automating the Roth switch.

Angela Capek, product area leader of Defined Contribution Product Platforms at Fidelity, the nation's largest 401(k) administrator, advises monitoring contributions closely. 'Make sure your catch-ups go where they are supposed to go,' she said.

The Silver Lining for Patient Savers

Despite the immediate tax impact, Roth contributions offer notable long-term benefits. Withdrawals in retirement are entirely tax-free, and Roth accounts are exempt from the required minimum distributions (RMDs) that traditional 401(k) owners must take.

This rule stems from the SECURE 2.0 Act passed by Congress in 2022, partly designed to generate upfront tax revenue to offset the law's other provisions. The mandate requiring high earners to make Roth catch-up contributions is currently effective for the 2026 tax year. Plans have a 'good faith' compliance grace period through 2026, with full enforcement beginning in 2027. However, for workers relying on that annual deduction, the clock has already run out.