High Earners Lose Tax Deductions on 401(k) Catch-Up Contributions

Estimated reading time: 5 minutes

Since 2002, retirement savers age 50 and older have been allowed to make catch-up contributions to their 401(k) plans, additional contributions beyond the standard employee deferral limits.

The goal was simple: give older workers a chance to accelerate retirement savings, especially those who started saving later in life or saw their cash flow improve as major expenses (like childcare or college tuition) dropped off.

In 2026, the catch-up limit has grown to $8,000 annually, with even higher “super catch-up” amounts available for those aged 60-63.

Historically, catch-up contributions have been especially attractive because they combined two powerful benefits: higher contribution limits and an upfront tax deduction when made to a traditional 401(k).

What’s Changing in 2026: Secure 2.0 and Rothification

That long-standing tax advantage changes beginning January 1, 2026, due to a new provision in the SECURE Act 2.0.

Under the new rules, workers age 50 or older who earned more than $145,000 in wages from their current employer in the prior year (indexed for inflation in future years) will no longer be allowed to make catch-up contributions to a traditional 401(k). Instead, those catch-up contributions must be made to a Roth 401(k).

Roth contributions are made with after-tax dollars, so they do not reduce adjusted gross income in the year the contribution is made.

To put numbers to it, consider a higher-earning 50-year-old who contributes the $8,000 catch-up limit in 2026. If that contribution had been allowed as a traditional catch-up, it would have reduced taxable income by $8,000. At a 24% tax rate, that’s a tax savings of $1,920. Under the new rules, that tax savings disappears, and the individual pays the full tax bill upfront.

This change could make catch-up contributions feel less appealing at first glance, especially for higher earners who historically used catch-up contributions primarily as a tax-reduction strategy. For many investors, the long-term benefits of Roth catch-up contributions may still outweigh the short-term cost.

Why You Might Still Want to Make Catch-Up Contributions

Even without an immediate tax break, catch-up contributions can still play a valuable role in a well-constructed retirement plan.

Roth 401(k) vs. Taxable Accounts

For higher earners deciding between saving in a taxable brokerage account or a Roth 401(k), the Roth option is often more tax-efficient. In a taxable account, income and capital gains may trigger annual taxes, reducing compounding. Roth accounts avoid this friction entirely, making them especially attractive for long-term growth-oriented investors.

Additionally, Roth distributions do not increase adjusted gross income in retirement, helping retirees avoid secondary tax consequences.

Closing Retirement Savings Gaps

For investors who started saving later, experienced career interruptions, or simply want to strengthen their retirement position in the final working years, catch-up contributions remain one of the most effective tools available.

Starting at age 50, savers can contribute more than the standard 401(k) limits each year. Over time, these additional contributions can meaningfully close savings gaps and provide a larger margin of safety heading into retirement, particularly in periods of market volatility or economic uncertainty.

Key Tax Advantages of a Roth 401(k)

While Roth catch-up contributions don’t reduce current taxable income, they offer powerful tax benefits down the road:

• Tax-free qualified withdrawals: As long as distributions are qualified (taken after age 59½ and after the account has been open at least five years), withdrawals are completely tax-free.
• No required minimum distributions (RMDs): Unlike traditional 401(k)s and IRAs, Roth accounts are not subject to RMDs, giving retirees greater control over when, and whether, they withdraw funds.
• Tax-free growth: Interest, dividends, and capital gains inside a Roth 401(k) are not taxed annually, allowing assets to compound more efficiently over time.

Reducing Medicare and NIIT Exposure

Because Roth withdrawals are not included in taxable income, they can help retirees avoid or reduce:

• Medicare income-related monthly adjustment amounts (IRMAA), which increase premiums for higher-income retirees
• Net investment income tax (NIIT), which can apply when income crosses certain thresholds

Estate Planning Benefits

Roth 401(k)s can also be a powerful estate-planning tool. Heirs generally receive Roth assets tax-free (subject to required distribution rules), making them more efficient than traditional retirement accounts that pass on future tax liabilities.

Future Flexibility Through Roth IRA Rollovers

Finally, Roth 401(k) balances can later be rolled into a Roth IRA (including a self-directed Roth IRA) after leaving an employer or retiring.

Why You Might Choose Not to Make Catch-Up Contributions

While catch-up contributions remain a powerful tool, they aren’t the right move for everyone.

Your Plan Doesn’t Offer a Roth 401(k)

If your plan does not currently offer a Roth option, you may be unable to make catch-up contributions at all.

Although many employers are updating their plans, implementation timelines vary. In the meantime, higher earners in these plans may need to explore other savings strategies, such as taxable investing or backdoor Roth IRAs (where eligible).

You’ve Already Met Your Retirement Goals

For investors who have already accumulated sufficient retirement assets to fund their planned lifestyle, catch-up contributions may not add meaningful value, especially if they were previously motivated primarily by the upfront tax deduction.

If your retirement plan is fully funded and your income needs are secure, you may prefer to:

• Maintain greater liquidity
• Focus on non-retirement investments
• Prioritize lifestyle spending, charitable giving, or estate planning strategies

A Shift in Strategy, Not the End of Catch-Up Contributions

For higher earners, the 2026 changes to catch-up contributions mark a meaningful shift, but not the end of their usefulness.

Yes, SECURE 2.0 removes the possibility of upfront tax deductions in 401(k) catch-up contributions for many high-income workers. But focusing only on the immediate tax impact misses the bigger picture.

For investors who are behind on savings, expect higher taxes in retirement, or value long-term tax certainty, Roth catch-up contributions can still play a critical role in a well-rounded retirement strategy.

That said, the right decision depends on your full financial picture: your income, tax outlook, employer plan features, and personal goals. As with most retirement strategies, the real advantage goes to those who understand the rules and use them deliberately.