2026 401k Catch-Up Rule: What High Earners Must Know

A significant change to retirement savings rules goes into effect in 2026 that could reshape how many older workers save in their 401(k) plans. Under the new 2026 401k catch-up rule, employees aged 50 and older who earned above a certain income threshold last year must make catch-up contributions as Roth (after-tax) contributions rather than traditional pre-tax ones. This shift changes when income taxes are paid on the extra retirement savings.

What Are Catch-Up Contributions?

Catch-up contributions are additional amounts that workers aged 50 and over can contribute above the standard annual 401(k) limit. They were designed to help savers close gaps in their retirement accounts as they approach retirement age. In past years, individuals could choose whether these extra contributions were made to traditional 401(k) accounts on a pre-tax basis or to Roth accounts on an after-tax basis.

The 2026 Rule Change for High Earners

Starting in 2026, workers who earned more than a specified income threshold in the prior year must make all catch-up contributions as Roth contributions, meaning those contributions are made after taxes are taken out of pay. Previously, eligible employees could allocate these contributions to traditional 401(k)s and reduce their taxable income for the year. Now, high earners lose that immediate tax benefit on catch-up contributions and instead pay taxes upfront.

Income Threshold and Definitions

The income threshold that triggers this rule applies to annual wages reported by an employer in the prior year. Individuals who exceed that threshold — typically those with significant earnings — will need to direct catch-up savings into a Roth 401(k) if their retirement plan permits it. If the employer’s plan does not offer a Roth option for catch-up contributions, employees may not be able to make catch-up contributions at all under this rule.

How This Affects Retirement Planning

This change can increase a worker’s taxable income in the year contributions are made but offers a major long-term benefit: Roth contributions grow tax-free, and withdrawals in retirement are also tax-free provided certain conditions are met. For savers who expect to be in a higher tax bracket in retirement, this can improve overall tax efficiency. However, for those who prefer reducing taxable income today, this rule may require adjustments in retirement strategy.

Preparing for the New Rule

Experts recommend that affected workers review their retirement contributions and payroll setup before 2026 arrives to ensure catch-up contributions are correctly coded as Roth contributions. Checking whether the employer’s plan offers a Roth option is essential, and planning with a financial advisor or tax planner can help evaluate whether making catch-up contributions, shifting to a Roth strategy, or reallocating savings balances makes the most sense.

Conclusion

The 2026 401k catch-up rule represents a notable shift in retirement planning for high-earning, older workers. By requiring catch-up contributions to go into Roth accounts for those above a certain income, the rule changes the timing of taxes and encourages strategic planning to maximize tax-free income in retirement. Understanding these changes and preparing accordingly can help savers adapt and make the most of their retirement savings strategy.