Silver Linings? The New 401(k) “Catch-up” Contributions Rule” for 2026

Beginning January 1, 2026, per the Secure 2.0 Act of 2022, there is a new rule related to catch-up contributions made by “high wage earners” to their 401(k) account.

Per the Current Rule:

Catch-up contributions can be made on either a before-tax (traditional) or Roth (post-tax) basis, depending on the plan provisions and participant elections. Many 401(k) plans allow both options currently. Plans that do not have Roth options should consider adding before 12/31/2025.

Rule starting in 2026:

If a participant earned more than $145,000 (known as “high-wage earners”) in Social Security wages from their current employer in the previous year, their catch-up contributions must be made as Roth contributions, meaning they are made with post-tax dollars. For these “high-wage earners”, this shift could impact tax planning strategies. Because Roth contributions do not provide an immediate tax deduction, this mandated change may present a higher current-year tax bill for those accustomed to making before-tax contributions.

Building a Roth “bucket” in addition to a traditional retirement “bucket” can have positive benefits as Roth’s offer:

• Tax-Free Growth and Withdrawals. Even though you pay tax up front (at today’s tax rate), all future growth and withdrawals are tax-free if the account meets the Roth rules (age 59 1/2 + and at least 5 years since your first Roth contribution/conversion). This matters because you (and importantly, your spouse as beneficiary) might live another 25+ years, meaning decades of compounding without future taxes and if tax rates rise later, you’ve already paid at today’s rates.
• Roths Offer Tax Diversification. Having both traditional and Roth assets gives flexibility in retirement as you can draw from Roth accounts in years you want to keep taxable income lower (e.g., to avoid Medicare surcharges or Social Security taxation) and/or draw from pre-tax accounts when you want deductions or expect a lower bracket that year. This could help control your tax rate in retirement.
• No Required Minimum Distributions (RMDs). Traditional IRAs and 401(k)s force taxable RMDs starting at age 73 or 75 (depending on your birth year). If you roll a 401(k) Roth into a Roth IRA, you do not have RMDs during your lifetime (and if your spouse is your beneficiary, for your spouse’s lifetime). This allows your money to keep growing tax-free and provides flexibility to manage taxable income more precisely in later years.
• Estate Planning Advantages. Roth assets are extremely beneficiary-friendly as heirs inherit tax-free withdrawals (subject to the 10-year distribution rule) and can reduce the overall taxable income your heirs might otherwise face if they inherited pre-tax IRAs.
• Hedge Against Future Tax Increases. If you believe federal or state income taxes may rise, a Roth conversion today can be a hedge against policy risk.

Below are the catch-up amounts for 2025. The 2026 catch-up amounts should be released in the coming weeks.

• Catch-up = $7,500 for 50 years old and over
• Enhanced Catch-up = $11,250 for 60-63 years old

Time will tell, though perhaps this required change may indeed be a silver lining for retirees that fall into the categories described and who take advantage of the catch-up contribution.

As always, please reach out to your tax advisor and/or estate planning attorney for discussions on how these topics relate to you individually.

Janet R. Hayes

Janet R. Hayes, is an Investment Counselor at Leavell Investments. Janet joined the firm in 2004 and has been engaged in the investment management business since 1989. As an Investment Counselor, Janet works closely with high net worth individuals to analyze needs, set objectives, develop investment strategies, and manage their relationship with Leavell. Janet is a member of the firm’s Executive Committee and Board of Directors. Prior to joining Leavell, Janet served as SVP and Regional Manager for Compass Bank’s (now PNC) Private Client Services Group in Alabama and Florida. Janet served in a similar capacity with Bank of America in Nashville, Houston, and Charlotte. She holds a B.S. in Business Administration from the University of North Carolina at Chapel Hill. Janet is a member (past president) of the University of South Alabama’s Mitchell College of Business Executive Council. She is also past president of the Ronald McDonald House and served for many years on the Board of Directors. She also served on the national Charles Schwab Advisor Services Board, the First Community Bank Board of Directors and the Junior League of Mobile Board of Directors. She is a graduate of Leadership Mobile. Janet has enjoyed traveling to each of the seven continents and five oceans, though most of all appreciates quality time spent with her husband Bill, her son David, and her extended family & friends.

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Important Disclosures: The statements and opinions expressed in this article are those of the authors as of the date of the article, are subject to rapid change as economic and market conditions dictate, and do not necessarily represent the views of Leavell Investment Management, Inc. This article does not constitute investment advice, is not predictive of future performance, and should not be construed as an offer to sell or a solicitation to buy any security or make an offer where otherwise unlawful. Investing in securities carries risk including the possible loss of principal. Individual circumstances vary. Past performance is no guarantee of future results.