Unpacking the New Rules for 401(k) Catch-Up Contributions

Key Takeaways

• Catch-up contributions let you add extra savings to your retirement accounts as you near the end of your earning years.
• Under new rules, if you earn over a certain income threshold, your catch-up contributions must go into a Roth account.
• You can still make catch-up contributions even if you’re below the income threshold that requires a Roth.
• Whether you choose to make catch-up contributions is an individual choice that depends on your situation and personal financial goals.

Christine Benz: Hi, I’m Christine Benz. A new provision for retirement plan catch-up contributions is going into effect for high-income people over age 50 starting this year. Joining me to discuss what you need to know about catch-up contributions is Tim Steffen, who’s the director of advanced planning at Baird. Tim, thank you so much for being here.

Tim Steffen: Good to see you again, Christine. Thank you.

When and Where Can You Make Catch-Up Contributions?

Benz: It’s good to see you, too. Let’s start by discussing the basic premise behind these catch-up contributions. At what age are they available, and which account types offer them?

Steffen: Quite a few years ago, the IRS—or Congress, I guess, really—decided that individuals may not be saving enough for retirement, maybe they’ve had too many other expenses; kids, student loans, whatever it might be. As they get older, though, they’ve got a little bit more discretionary income. Let’s let them put more money into retirement accounts. So, they came up with a concept of catch-up contributions. Catch up is a little bit misleading because it makes it seem like, well, if I didn’t save before, this is going to save my retirement plan. That’s not what these are meant to be. This is a little bit of extra money you’re allowed to save in your retirement accounts that will build for retirement. You can do this in different kinds of accounts, whether it’s traditional IRAs, simple IRAs, or 401(k) plans through employers. All of them offer some form of catch-up.

Now, the rules are different on each of them in terms of how much you can put in, but it’s a way to kind of supercharge your retirement savings as you get closer to retirement.

New Rules Around Catch-Up Contributions

Benz: Let’s talk about the change that went into effect for 401(k) catch-up contributions starting this year. Seems like it limits the choices for some workers a little bit, doesn’t it? Maybe you can talk about what the change is.

Steffen: Beginning at age 50 is when these catch-up contributions become eligible to do them. The year you turn 50, you are now able to put more money into your retirement account. That’s been the case now for a long time. I believe it’s another $8,000 you can put into your 401(k) this year, beginning the year you turn 50. You’ve been able to put that into whatever plan the employer offers, whether it’s a traditional account, a Roth account, or split it between the two, however you choose to do that. Beginning this year, in 2026, the rules have changed. This was actually supposed to take place a couple of years ago, but employers needed more time to adapt to this new rule. Now they’re saying that certain employees, if your income is over a certain threshold, you have to put your catch-up contribution into the Roth account.

That’s not necessarily a bad thing. It’s going into an account that’s going to provide tax-free income later in life, but it restricts your flexibility. Instead of putting it into the traditional account, where you could get a deduction for it, now you have to put it into the Roth account, which means no tax deduction. You put that same $8,000 into the Roth that you were putting into the traditional. It actually costs you more because you’ve got to pay tax on that $8,000. Your take-home is going to be a little bit less, but the good news is it’s going to be tax-free when it comes out. They’ve restricted your flexibility on these.

Which Earnings Require Roth Contributions?

Benz: So, income level comes into play here to determine who has to necessarily make their catch-up contributions be Roth. If I’m making my 2026 contributions, income from which year would determine whether I need to make my catch-up contributions as Roth?

Steffen: It’s a great question. It’s why it took employers a while to get able to support these things. What they say is that when you’re making your 2026 contribution, you have to look at the wages you earned from that employer in the prior year. If you’ve been working with the same company for years, you just go back and look at your W-2 from the prior year. I think it’s box three of the W-2. It’s not taxable income; it’s income subject to FICA and Medicare. It’s the larger number on your W-2 that you look at. If that number last year was over $150,000, you are subject to this new rule, and you have to put your catch-ups—if you’re going to make it—into the Roth account. Now, where it gets complicated is with people who’ve changed jobs. Let’s say I work for company A in all of 2025, but in 2026, I’m working for company B.

Well, I don’t have any income from company B last year. Because it’s all based on my income from my current employer, I’m not subject to that rule. Even though I might have made well over the $150,000 threshold from my old employer, that’s a different company. My new company doesn’t have to force me into the Roth. If you change jobs mid-year, you might start off working for your former employer, where you couldn’t do your catch-up to the traditional. You had to do it to the Roth. Mid-year, you change jobs to your new employer, and you can do the Roth because you don’t have any prior-year income from them. That’s why it’s complicated, and you’ve got to really pay attention to that W-2 number. That’s the key one to look at.

Catch-Up Contributions for Earners Below the Mandatory Threshold

Benz: Just to clarify, for people who fall below the thresholds for the mandatory catch-up contributions into Roth, they can still make their catch-up contributions to Roth, right? It’s not the exclusive domain of the higher-income folks.

Steffen: Correct. If you’re below those thresholds, you can do the catch-up to the traditional, the Roth, or split it between the two, if you want. That’s perfectly fine. Just to be clear, if you’re above the threshold, they’re not saying you have to do the catch-up. You can decide, “You know what? I don’t want to do it to the Roth. I’m just not going to do it.” That’s always an option too.

‘Super-Catch-Up’ Contributions Explained

Benz: There are also these “super-catch-up” contributions, which are available for people who are between the ages of 60 and 63. Can you discuss those?

Steffen: Yeah, that’s a new one that took effect. I think 2025 was maybe the first year we had those. We’re calling it the mega-catch-up, or super-catch-up, or whatever term they get. There’s no official name for it. But what they said is, for this little window of people between the ages of 60 and 63, and that’s your age at the end of the calendar year, you can put a little bit more into your retirement plan as a catch-up contribution. The formula for that is a little weird. In 2026, the amount you can do in that 60 to 63 window actually fell. The total catch-up across the entire window stayed the same. When the age 50 amount went up, that meant the age 60 to 63 number came down a little bit. So it’s in the $3,000 to $3,200 range, something like that, for 2026.

But it’s an extra amount. It’s subject to the same rule we talked about, though. If your income was over that $150,000, even your super-catch-up has to go to the Roth as well. Once you hit 63, or the next year when you turn 64, you’re back to the lower contribution threshold again.

When Should You Skip Making Catch-Up Contributions?

Benz: The more retirement savings, the better in general. But are there any situations when someone should avoid making catch-up contributions and perhaps do something else with the funds instead?

Steffen: Well, it comes down to flexibility. If you put the money into the retirement plan at work through the catch-up contributions, you are subject to the rules of that plan. The tax rules, when it comes out, the ability to access it, maybe you’re limited while you’re still working; all those rules apply. Those can all be good if they fit into your plan, which allows you to meet your cash flow needs in that, during retirement. That’s perfectly fine. If you want to maintain flexibility and you’re willing to pay a little bit of tax cost upfront for it because you don’t get the deduction, put it in your taxable account, have more control over it, then that can be fine. It’s an individual-by-individual thing, and it’s part of analyzing your overall financial plan. Where does it make more sense for me to have my savings?

Will My Roth Stay Tax-Free?

Benz: Changes like this one have been called “Rothification,” in that it seems like the government does have a very strong incentive to get people to choose Roth treatment for their accounts because that means that taxes come in the door. Can you discuss that and also assess, maybe share your insight on whether we’re likely to see additional efforts to push savers into Roth accounts to speed up those tax receipts?

Steffen: The fear ever since Roths came out is that at some point the government was going to change its mind and say, “These Roth accounts aren’t going to be tax-free. They’re going to be taxable.” I really don’t think that’s ever going to happen. I point to things like this as an example of not only do they not plan to change the current Roth rules, they’re actually encouraging people to do more Roth. Ever since they removed the AGI cap for doing conversions and all the other things they’ve done to encourage Roths, this is just another example of it. The idea is that the government realized that by having Roth accounts, people do save for retirement, and it doesn’t cost us any tax revenue, at least not today. There’s no deduction for it. It’s not hurting us. So, let’s let them put it in the Roth so that we still collect the same revenue we do today.

At some point, there’s going to be a revenue shortage because all this money coming out of the Roth is going to be tax-free. That’s another Congress’s problem. Somebody else will have to deal with that down the road. That’s a different budgetary issue, and why you might see someday, things like more strict R&D rules on Roth IRAs and 401(k)s. We’ve seen proposals out there to cap the total value in Roths; those have never really gone anywhere. As time goes on, as political winds change, maybe those things do come back, and we see that. For the time being, Roths are not only available, but are being encouraged to use by the government. So take advantage of them.

Benz: Tim, it’s always great to get your insights on these matters. Thank you so much for being here.

Steffen: Thanks, Christine.

Benz: I’m Christine Benz from Morningstar. Thanks for tuning in.

Watch Retirement Withdrawal Sequencing Rules of the Road for more from Christine Benz.