Major 401(k) Tax Break For Certain Earners Is Coming To An End

September 29, 2025

Starting December 31, 2026, a significant change is coming to retirement savings rules for workers aged 50 and older—particularly high earners.

Under the new regulations, older workers who earn more than $145,000 annually will no longer be able to make pre-tax catch-up contributions to their 401(k) plans.

Instead, these individuals will be required to make Roth catch-up contributions, meaning they’ll pay taxes on those contributions upfront rather than during retirement. The change is part of the Secure 2.0 Act, passed in 2022, with final rules issued by the IRS on September 16.

What Are Catch-Up Contributions?

Catch-up contributions allow workers aged 50 and above to contribute additional funds to their retirement accounts. This feature is especially helpful for those who started saving later in life. As of now, the catch-up limit is $7,500, on top of the regular $23,500 contribution cap.

What’s Changing?

Who’s affected? Workers aged 50+ earning more than $145,000 in the prior year.

What’s changing? Catch-up contributions must be made to Roth accounts, which are taxed upfront.

Why? The government is shifting tax benefits to be realized later, rather than allowing high earners to defer taxes during their peak income years.

Impact on Workers

This marks the first time the U.S. government is mandating Roth contributions for certain retirement savings. The goal is to collect taxes now from high earners, rather than waiting until they retire and may be in a lower tax bracket. Workers aged 60 to 63 will also see a higher catch-up limit of $11,500, which will be adjusted over time for inflation.

According to The Wall Street Journal, a 60-year-old in the 35% tax bracket could lose nearly $4,000 in tax deductions on an $11,250 contribution—potentially affecting their overall tax bracket and eligibility for other deductions or credits.

While this could mean higher immediate tax bills, it may ultimately benefit those who expect to be in a higher tax bracket during retirement, since Roth withdrawals are tax-free.

Source: Daily Express U.S.

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