Administration January 5, 2026

Catch-Up Contribution Rules May Affect Plans More Than Participants

Industry observers encourage employers to focus on information systems and communications as new Roth requirement for high earners rolls out.

Reported by

Beth Braverman

Art by Greg Clarke

Starting in 2026, high earners making catch-up contributions in their workplace retirement plans will need to do so via Roth accounts, losing the near-term tax advantage of writing off those additional contributions.

Experts say the change, authorized as part of the SECURE 2.0 Act of 2022, is unlikely to meaningfully affect how much affected participants save, but it may change the way that they think about Roth accounts. The new rules apply to those age 50 or older who earned at least $150,000 in 2025.

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“Typically, those high earners are going to gravitate toward taking advantage of pre-tax contributions to lower their taxable income today and not really think about it for the long term,” says Michelle Cannan, managing director and head of company retirement plan services at Modern Wealth Management.

But as they dip their toes into Roth contributions, these participants may be more interested in making additional Roth contributions or consider converting existing pre-tax accounts to Roth. Affected participants will likely continue making catch-up contributions, either because they are behind and saving a relatively large percentage of their income or because they are high earners limited by the base deferral rate, according to David Blanchett, head of retirement research at Prudential and a portfolio manager at PGIM.

“These people … have recognized that they need to save more for retirement and will likely continue doing so, even with the change,” Blanchett says.

Limited Percentage of Earnings

In 2026, those 50 and older can stash an additional $8,000 in their retirement accounts through catch-up contributions, on top of the $24,500 limit for regular contributions. Those aged 60 through 63 have a higher catch-up limit and can save an additional $11,250, bringing their total to $35,750.

“The net effect as a percentage of income, for people who are able to save more than $30,000 for retirement, is going to be on the smaller end on a percentage basis for those employees,” says Chris Dall, deputy chief operating officer and head of contribution retirement solutions at PNC.

An individual in the 32% tax bracket, for example, would lose $2,500 in tax savings for 2026 by putting the extra $8,000 in a Roth 401(k) rather than a traditional 401(k). While that is a sizeable amount, it may not be enough to keep those individuals from taking advantage of the long-term tax benefits of the Roth, Dall says.

For affected individuals, the opportunity to put more retirement savings in a Roth account may improve their financial security over the long term by providing them with more flexibility to plan future withdrawals. With Roth contributions, participants pay taxes upfront on their contributions in exchange for tax-free growth and tax-free withdrawals later. Plan sponsors should lean into that aspect as they educate participants about the coming changes, experts say.

“It’s a good opportunity to educate people on the benefits of Roth and how it’s different, and the concept of tax diversification,” says David Stinnett, head of strategic retirement consulting at Vanguard. “I think people understand diversification as it pertains to investing in stocks and bonds, but the same concept applies to tax diversification.”

According to Vanguard data, among plan participants making at least $150,000 per year, about one in five is currently making any Roth contributions.

“That percentage will increase,” Stinnett says. “But it’s not like [Roth contributions] are a completely foreign concept to highly compensated participants right now.”

Communicating the Change

Cannan said her firm is working with plan sponsors to prepare communication materials aimed specifically at eligible participants. They’ve also included information about the change in recent newsletters and in a podcast episode.

“The more information we can get out there, the better, because I do think it will take some participants by surprise,” she says.

While plan sponsors must make a “good faith” effort to implement the rules this year, the IRS has given plan sponsors some breathing room, allowing them to complete any necessary plan amendments in 2027, says Elizabeth Dold, managing partner in Groom Law Group.

“Folks do need to coordinate with their recordkeeper, with their payroll and have lots of communications to impacted participants,” Dold says. “Probably the hardest part is between the payroll and your 401(k) recordkeeper, because they’re not always on the same page.”

The income cut-off is based on prior-year FICA wages from the employer sponsoring the plan. Plan sponsors will need to make sure that their systems are ready for the shift, beginning with making sure protocols are in place to block those earning more than $150,000 per year from making traditional, pre-tax catch-up contributions and providing the ability to recharacterize contributions as Roth and notify participants.

Plan sponsors that do not allow Roth contributions will have to prevent high earners from making catch-up contributions at all.

“I do think that the administrative side is going to be a little bit of a headache for plan sponsors as they start to wrestle with these rules in 2026 and beyond,” Dall says.