High Earners Age 50+ Face New 401(k) Tax Rule

Starting in 2026, high earners age 50 and older will face a change in how they can save for retirement. Under the SECURE 2.0 Act, participants in 401(k) and similar workplace retirement plans above the standard limit will no longer be eligible for the traditional pre-tax catch-up contributions. Instead, these contributions will be treated as after-tax Roth deposits. For many, this may prompt a careful review of retirement strategy and tax planning.

Catch-up contributions are additional savings allowed for workers over 50 who have already reached the standard 401(k) contribution limit. In 2025, that limit is $23,500, and catch-up contributions may add $7,500, or up to $11,250 for participants between ages 60 and 63 if their plan allows. Until now, catch-up contributions could be made pre-tax, reducing taxable income in the current year while growing tax-deferred until retirement.

In September 2025, the IRS and the Department of the Treasury issued final regulations (IR-2025-91) addressing these SECURE 2.0 Act provisions related to catch-up contributions. Under the new rule, employees whose prior-year FICA wages exceed $145,000 will have catch-up contributions automatically treated as Roth deposits. Contributions made on this after-tax basis will not reduce current taxable income, but they will grow tax free and, under current law, may be withdrawn tax free if the account has been open for at least five years and the participant is at least 59½. SECURE 2.0 also exempts these Roth contributions from required minimum distributions at age 73, offering additional planning flexibility in retirement.

Most workplace retirement plans already offer a Roth 401(k) option. If a plan does not, affected participants may be unable to make catch-up contributions at all. Workers earning below the FICA threshold remain unaffected and may continue making pre-tax contributions.

The change has both advantages and disadvantages.

In the near term, participants will pay more in income taxes because contributions are no longer deducted from taxable earnings. Take-home pay may be reduced, especially for high earners contributing the maximum catch-up amount. Over the long term, however, the tax-free growth and withdrawals of Roth contributions can provide financial flexibility in retirement, particularly when other income sources such as Social Security are taxable.

While the policy change is straightforward, it may influence decisions about contribution amounts, retirement timing, and broader tax planning. AAFCPAs advises that clients review how their contributions will be treated, coordinate with their plan administrators, and consult their financial advisor to align retirement savings with long-term personal financial planning goals. Understanding these adjustments now can help maintain a consistent retirement strategy and avoid surprises when tax season arrives.

How We Help

AAFCPAs’ Individual & Family Tax practice provides high-net-worth individuals and business clients with strategic tax planning and wealth preservation solutions designed to address the full scope of their financial lives. We coordinate closely with our team of tax advisors, wealth managers, estate planning attorneys, and other trusted professionals to develop strategies that are tailored to each client’s specific circumstances.

Through AAF Wealth Management, we offer wealth advisory and investment management, aligning portfolios with clients’ objectives while prioritizing tax efficiency and long-term asset growth. We also provide specialized guidance for retirement plan fiduciaries, helping them navigate ever-changing regulations, uphold their responsibilities, and ensure plan compliance.

Our approach spans minimizing current tax liabilities, stock option planning, estimated tax strategies, and deductions and credits to long-term wealth preservation and tax-efficient investing that protects assets while maximizing returns. For clients with global interests, we provide guidance on international tax compliance, cross-border planning, and foreign investments. We also help clients navigate the regulatory landscape, maintain tax law compliance, and prepare for potential IRS audits.

Through proactive planning and close collaboration with each client’s advisory team, we empower informed decisions that help strengthen, protect, and maximize the enjoyment of wealth for years to come.

These insights were contributed by Daniel Seaman, CPA, Tax Partner, AAF Wealth Management.

Questions? Reach out to our author directly or your AAFCPAs partner.

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Tax services are provided by AAFCPAs. Investment advisory services are offered through AAF Wealth Management, a registered investment advisor. AAF Wealth Management and AAFCPAs are affiliated entities.