If You Earned Over $150K Last Year, Your 401(k) Catch-Up Just Became a Roth (Like It or Not)
The forced Roth conversion nobody warned you about—and why your payroll department might get it wrong
Every November, the IRS announces next year’s retirement contribution limits. Usually, it’s a yawn-inducing “$500 here, $1,000 there” affair that barely moves the needle.
Not this time.
Buried in the 2026 retirement plan limits is a rule that will fundamentally change how high earners save for retirement—and most people haven’t noticed yet.
The Headline Numbers (The Easy Part)
First, the good news: contribution limits are going up across the board.
401(k)/403(b) Plans for 2026:
Base limit: $24,500 (up from $23,500)
Age 50-59 catch-up: $8,000 (up from $7,500)
Age 60-63 “super catch-up”: $11,250 (unchanged)
Maximum total: $35,750 for those in the 60-63 sweet spot
IRA Limits:
Base: $7,500 (up from $7,000)
Catch-up (50+): $1,100 (up from $1,000)
That’s all pretty straightforward. More room to save, especially if you’re approaching retirement. Inflation adjustments doing their thing.
But here’s where it gets interesting...
The Curveball: Your Catch-Up Just Went Roth (Whether You Like It or Not)
Hidden in the SECURE 2.0 Act is a provision that kicks in fully for 2026. If you earned more than $150,000 in W-2 wages last year, you can no longer make pre-tax catch-up contributions.
Read that again.
All catch-up contributions—that $8,000 or $11,250 extra amount—must now be made as Roth (after-tax) contributions.
Why This Matters More Than You Think
Let’s say you’re 55, earning $200,000, and you’ve been maxing out your 401(k) for years. You’re in the 35% federal bracket (probably 37-39% when you add California state taxes).
The Old World (2025):
Contribute $31,000 pre-tax
Reduce your taxable income by $31,000
Tax savings: ~$12,000
The New World (2026):
Contribute $24,500 pre-tax (still deductible)
Contribute $8,000 Roth (no deduction, pay tax now)
Tax savings: ~$9,500
You just lost $2,500 in tax deferral
For someone in the 60-63 age bracket using the super catch-up? That forced Roth contribution jumps to $11,250. At a 39% marginal rate, you’re writing a check to Sacramento and Washington for ~$4,388 that you previously could have deferred.
The Three Things Nobody’s Telling You
1. It’s Based on LAST Year’s Income
Your 2026 catch-up treatment is determined by your 2025 FICA wages. That ship has mostly sailed. But you can start planning for 2027 right now.
2. It’s Only W-2 Wages
If you’re a business owner taking K-1 distributions or living off investment income, you might be under the threshold even with a high net worth. The IRS doesn’t care about your rental income, dividends, or capital gains for this rule—only your W-2 box.
3. Most Payroll Systems Aren’t Ready
I’m already hearing from clients whose employers’ payroll systems haven’t been updated for this rule. Some are defaulting all contributions to pre-tax (which will create a nightmare at tax time). Others are blocking catch-ups entirely until they figure it out.
You need to proactively verify your payroll setup in January.
Is This Good or Bad?
Honestly? It depends.
It’s bad if:
You’re in peak earning years and need every dollar of tax deferral
You expect to be in a lower bracket in retirement
You have other strategies (real estate losses, business deductions) to reduce current taxes
It’s surprisingly good if:
You expect tax rates to rise (probable)
You’re already wealthy and were going to do Roth conversions anyway
You want tax-free growth and your spouse will inherit a tax-free account
You’re in the 60-63 window and can force $11,250/year of Roth contributions at your current tax rate rather than doing larger conversions later
The IRS essentially just automated part of a Roth conversion strategy for high earners. Whether that helps or hurts you depends entirely on your individual situation.
What You Should Do Right Now
Before December 31, 2025:
Review your 2025 W-2 wages—are you over $150k?
If you’re close, talk to your CPA about year-end planning
Max out any pre-tax catch-ups you can still make in 2025
January 2026:
Contact your HR/payroll department
Verify they’ve updated systems for the new rule
Don’t assume automatic contributions are set up correctly
Schedule a Planning Session:
Recalculate your 2026 tax projections
Review whether traditional Roth conversions still make sense
Adjust withholding if needed (remember, Roth contributions don’t reduce your taxable income)
The Bigger Picture
This rule change is part of a broader trend: the government wants tax revenue now, not later. Traditional retirement accounts were always a “pay me later” deal with the IRS. Now they’re saying, “Actually, if you’re doing well, pay us now.”
For successful professionals and business owners, retirement planning just got more complex. The old “max out your 401(k) and move on” approach doesn’t cut it anymore.
You need a strategy that accounts for:
Current vs. future tax rates
Multiple account types (pre-tax, Roth, taxable)
Income timing and control
Estate planning implications
State tax residency
This is exactly why comprehensive financial planning matters.
Have questions about how the 2026 changes affect your specific situation? The rules are complex, and every high earner’s situation is different. Schedule a consultation to review your options before January.
Sources
Internal Revenue Service. “401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500.” November 13, 2025. Available at: https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500
Internal Revenue Service. Notice 2025-67: “Cost-of-Living Adjustments for Pension Plans and Other Retirement-Related Items for Tax Year 2026.” November 2025. Available at: IRS.gov
SECURE 2.0 Act of 2022, Division T of the Consolidated Appropriations Act, 2023 (H.R. 2617), Sections 109 and 603.
American Society of Pension Professionals & Actuaries. “2026 401(k) Contribution Limits Issued by the IRS.” November 13, 2025. Available at: https://www.asppa-net.org/news/2025/11/2026-401k-contribution-limits-issued-by-the-irs/
CNBC. “IRS announces 2026 401(k) contribution limits, raises savings cap.” November 13, 2025.
CNN Business. “401(k), IRA contribution limits get a bump up.” November 13, 2025.