401(k) catch-up contributions: Big 401(k) alert: High-income Americans 50+ may lose crucial tax breaks soon

The IRS is introducing new rules that will eliminate a popular retirement tax break for some high-income earners age 50 and over. Starting in 2027, workers over 50 who earned more than $145,000 last year must deposit their catch-up contributions into a Roth (after-tax) account, not a pre-tax account, although some workplace plans may implement this as early as next year.

Until now, workers could choose between Roth and pre-tax contributions if their workplace plan allowed it. This choice is now removed for high income earners. Some reports say that high-income earners who don’t have a Roth account at work may not be allowed to make catch-up contributions at all under the new rules.

Roth 401(k) rules

Catch-up contributions allow people age 50 and over to put extra money into a 401(k) or other work retirement account. In 2025, the regular 401(k) limit is $23,500, the catch-up limit is $7,500, and workers ages 60-63 can add a “super” catch-up of $11,250.
If you earned less than $145,000 last year, you can still choose between pre-tax and Roth for recovery. If you earned more than $145,000, all catch-up contributions must go to the Roth. Pre-tax contributions now reduce your taxes; This helps you earn a lot. Roth contributions don’t reduce taxes today, but the money grows tax-free and you don’t pay taxes when you receive it in retirement.

Pension tax changes

Roth contributions have some benefits: they help you diversify your tax strategy, offer a mix of taxable and tax-free accounts, and tax-free withdrawals can be very useful if tax rates rise in the future. According to a 2024 survey by the Plan Sponsor Council of America and cited by CNN, 93% of workplace plans offer Roth 401(k) options. High-income earners who do not have a Roth account at work may lose the ability to make catch-up contributions.

If these changes affect you, you may need to make changes to your retirement planning. You can accelerate pre-tax contributions over the next two years to save tax before the new rules apply. Check with your plan administrator to see when your plan will begin making changes, as noted in Moneywise’s report. You may also want to reconsider your retirement account mix. If most of your savings are pre-tax, a Roth offset provides more flexibility. You can use Roth money instead of traditional accounts to reduce taxable income in future years. It may help to review your tax picture with a financial advisor. They can test different strategies, such as making pre-tax contributions in 2025-26 and switching to a Roth in 2027, to see which one works best, according to Moneywise’s report. High-income earners may need to change their retirement plans because of this rule. It’s important to stay current and start planning your savings now.

FAQ

Q1. Who will be affected by the new 401(k) catch-up rules?

Workers age 50 and older who earn more than $145,000 and want to make catch-up contributions will be affected.

Q2. Can high earners still make pre-tax catch-up contributions?

No, starting in 2027, high earners must deposit all catch-up contributions into a Roth (after-tax) account.