A Major 401(k) Change Starting Next Year Will Change How High Earners Save for Retirement
Significant changes are coming for retirement savers, especially those earning more than $145,000 a year. The Internal Revenue Service (IRS) and the U.S. Department of the Treasury are implementing new rules under the Secure 2.0 Act that will reshape how high earners contribute to their 401(k) plans.
By 2027, anyone aged 50 or older who earned over $145,000 from their current employer the year before will have to make their catch-up contributions using after-tax Roth dollars. That means no more upfront tax breaks on that extra retirement money for high-income earners. The rule was initially scheduled for 2024 but was delayed multiple times to give employers and payroll systems adequate time to adjust.
A New Rulebook for Catch-Up Contributions
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Catch-up contributions allow people aged 50 and up to save additional money for retirement. For 2025, the standard 401(k) contribution limit is $23,500, and the catch-up amount adds another $7,500. Workers between the ages of 60 and 63 can contribute even more, with a “super catch-up” contribution of $11,250.
These higher limits are designed to help older workers accelerate their savings as they approach retirement. Until the end of 2026, workers can still choose whether those extra contributions are pretax or Roth, depending on what their employer’s plan offers.
Beginning in 2027, however, that choice disappears for high earners. Anyone earning more than $145,000 will be required to use the Roth option. This means taxes on the catch-up money will be paid in the year of contribution, during peak earning years, instead of being deferred until retirement. While that results in a short-term hit, withdrawals from Roth 401(k)s during retirement remain tax-free.
Who’s Affected the Most
The people most affected by this change are older workers in higher tax brackets who have relied on the pretax deduction to reduce taxable income. Someone making a super catch-up contribution of $11,250 could lose a deduction worth nearly $4,000, depending on their tax bracket. This is particularly challenging for employees whose employers do not currently offer a Roth 401(k) option. Without one, those employees will not be able to make catch-up contributions at all once the new rule takes effect in 2027.
Many employers are working quickly to fill this gap. According to recent data, Roth options are now offered in a large majority of 401(k) plans managed by major providers like Fidelity and Vanguard.
Planning Is Key
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Financial planners are encouraging workers not to wait. Certified financial planner Patrick Huey advises running multi-year tax projections to determine whether accelerating pretax contributions through 2026 makes sense. For some, it might be better to start using Roth contributions now and get accustomed to paying the taxes upfront. Another financial expert, Jared Gagne, emphasizes that folks shouldn’t just sit on the sidelines. Workers need to understand how the new rule affects them and adjust their strategy before the 2027 deadline arrives.
This change represents a shift in tax timing, and it’s a major evolution in how Americans save for retirement. Paying taxes now instead of later might not sound appealing, but it can lead to a more predictable, stress-free financial future. The main takeaway remains clear: if you’re a high earner over 50, start planning early and ensure your retirement strategy aligns with the upcoming Roth-only rule.