The Internal Revenue Service has announced a major change to 401(k) contributions for certain workers.
Workers ages 50 and older are eligible to make catch-up contributions to their 401(k)s and other similar workplace retirement plans.
In the past, these contributions could be made pre-tax. But under a new rule, workers who made more than $145,000 in the year prior must make these catch-up contributions after tax. That means these contributions will go into a Roth account, which is for contributions made with after-tax dollars.
The new rule takes effect in 2027 but retirement plans can start implementing this policy as soon as 2026 using a “reasonable, good faith interpretation of statutory provisions,” according to the IRS.
Here’s what you need to know about the change, and how it might impact you.
What are catch-up contributions, and why do they matter?
401(k) plans are a popular type of retirement savings account provided by employers. In 2025, workers can contribute up to $23,500 to their 401(k)s. In 2026, that limit will be $24,500. But workers 50 and older are eligible to make additional contributions on top of this limit.
The limit for catch-up contributions in 2025 is $7,500, and will increase to $8,000 in 2026. Workers ages 60 to 63 have an even higher 2025 catch-up contribution limit of $11,250, which will remain the same in 2026.
Catch-up contributions are important for workers who feel like they haven’t saved enough for retirement, according to Samantha Prince, an associate law professor at Penn State Dickinson Law.
“At age 50, they’re closer to the milestone of being able to retire, and better situated to assess what their retirement needs are,” Prince told The Independent. “So, these catch-up contributions are really important.”
How will the changes impact me?
Under the new rule, catch-up contributions must be made after tax by workers 50 and older, who are making more than $145,000 in FICA wages, which refers to wages that can be taxed for Social Security and Medicare.
Most workers in the U.S. pay FICA taxes, with some exceptions. This $145,000 threshold is also based on a worker’s income from the previous year. The new rule means catch-up contributions from these workers must be made after taxes into a Roth account.
While it might seem like higher earners are losing a tax break under this change, Prince says there are trade-offs to both options.
“When you do pre-tax [contributions] it's not taxed at the rate you're at now. When you start taking money out, your earnings and the money you put in are all going to start being taxed then,” Prince said. “The idea is you're at a lower tax bracket when you're in retirement than you are when you're an avid income earner in your working life.”
But paying taxes on catch-up contributions immediately means you won’t get taxed on your earnings later.
“When you do this additional catch-up contribution, it's actually a bit of a boon, in a way, that you are paying the tax now, but on all those earnings, you will never pay tax,” Prince said. “The other way, you’re having to pay tax on your earnings.”
Workers who make above $145,000 but whose 401(k) plans don’t offer Roth options won’t be able to make catch-up contributions. However, about 93 percent of plans offered Roth after-tax contributions in 2023, according to a survey by the Plan Sponsor Council of America.
If you earn above the threshold and don’t have a Roth 401(k) option available, there are still ways to save the funds you’d use for catch-up contributions. Prince suggests putting those funds into a brokerage account instead.
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