Are you ready for a tax surprise in retirement? The IRS just shook up a beloved tax break for 401(k) contributions, and it could mean a bigger tax bill for some high earners. Here’s the deal: starting in 2026, if you’re a high earner making $145,000 or more, your catch-up contributions to your 401(k) will have to go into a Roth account—no more upfront tax deductions for you. But here’s where it gets controversial: while this change aims to balance the tax benefits for higher earners, it’s leaving some workers scrambling to adjust their retirement strategies. Let’s break it down.
Until the 2025 tax year, workers aged 50 and older could choose to make their catch-up contributions to either a traditional pre-tax 401(k) or a Roth after-tax account. This flexibility allowed them to optimize their tax situation based on their financial goals. For instance, contributing to a traditional 401(k) on a pre-tax basis reduced taxable income immediately, offering an upfront tax break. However, the new rule eliminates this option for high earners, potentially increasing their tax liability in the short term.
Catch-up contributions are essentially extra savings opportunities for those nearing retirement. In 2025, eligible workers over 50 can contribute an additional $7,500 beyond the standard $23,500 limit. And for those aged 60 to 63, the catch-up limit jumps to $11,250—a significant boost to retirement savings. But here’s the part most people miss: if your employer’s retirement plan doesn’t offer a Roth 401(k) option, you might be out of luck until they do.
The good news? Employers are increasingly adding Roth 401(k) options. According to The Wall Street Journal, Fidelity now includes Roth options in 95% of its managed plans, up from 73% just two years ago. Vanguard isn’t far behind, with 86% of its plans offering Roth accounts. Still, this shift raises questions: Is the IRS unfairly targeting high earners, or is this a fair move to ensure tax equity? And what does it mean for your retirement strategy?
Here’s the trade-off: while traditional 401(k) contributions provide an immediate tax break, withdrawals in retirement are taxed as income. Roth accounts, on the other hand, offer no upfront tax deduction but allow tax-free growth and withdrawals. So, which is better? It depends on your tax situation now versus later. And this is where it gets even more interesting: Is the IRS pushing high earners toward Roth accounts because they expect taxes to rise in the future? Let us know what you think in the comments—do you agree with this change, or does it feel like a step backward for retirement savers?
