New 401(k) Rule for 2026: What High Earners Need to Know

A significant change to 401(k) contribution rules is coming in 2026, and it will affect certain higher-earning employees who are age 50 or older. This update, enacted under the SECURE 2.0 Act, changes how catch-up contributions are taxed & it may impact your ability to reduce taxable income.

Here’s what you need to know.

What Is Changing?

Beginning in 2026, if an employee:

• Is age 50 or older, and

• Earned more than $150,000 in wages in 2025 from the same employer (based on

Medicare wages),

• Then catch-up contributions to a 401(k) plan must be made as Roth (after-tax)

contributions.

In other words, those catch-up dollars can no longer be contributed on a pre-tax basis.

🔑Important Clarification: Not Your Entire 401(k)

A common misconception is that this rule forces all 401(k) contributions to be Roth. That is not the case.

• Regular 401(k) contributions can still be made pre-tax or Roth, at the employee’s

election.

• Only the catch-up portion (available to participants age 50 and older) is affected by

this rule.

Why This Matters

For affected individuals, this change means:

• No current-year tax deduction for catch-up contributions

• Higher taxable income today, even though savings continue to grow tax-advantaged

• Potential changes to cash flow and tax planning strategies

While Roth contributions offer the benefit of tax-free qualified distributions in retirement, the loss of an immediate tax deduction may come as a surprise to many high earners.

What Wages Are Used?

The $150,000 threshold is based on prior-year Medicare wages, as reported in Box 5 of Form W-2—not federal taxable wages or Social Security wages.

Additional key points:

• The $150,000 threshold is not indexed for inflation

• The test is applied employer by employer

• Employers must offer Roth contributions for catch-ups to be allowed under this rule

Planning Considerations

With this rule approaching, individuals and employers should consider:

• Reviewing payroll and plan administration systems

• Evaluating the tax impact of Roth catch-up contributions

• Updating employee communications and benefit education

• Coordinating retirement planning with broader tax strategies

🔑Key Takeaway:

Starting in 2026, higher-earning employees age 50 and over may no longer be able to reduce taxable income through pre-tax catch-up 401(k) contributions. Understanding how—and when—this rule applies is essential to avoiding surprises and planning effectively.

If you have questions about how this change affects you or your organization, consulting with The Fullinwider Firm, LLC or a trusted benefits advisor can help ensure your retirement & tax strategies remain aligned.