But in the short term, Mr. O’Saben said, higher tax bills and lower cash flow could be “a surprise” for taxpayers who have relied on catch-up contributions as a tax-cutting strategy at the end of their careers.
Consider, he said, a 55-year-old worker in the 24 percent tax bracket who earns above the wage limit and makes the maximum catch-up contribution of $8,000 for 2026. Under the old rules, the contribution would have reduced the employee’s federal tax bill by about $1,900, Mr. O’Saben said. However, under the new rules, the $8,000 is included in taxable income.
For workers making “super” catch-up contributions, the impact could be even greater, he said. Assume that a 62-year-old worker in the same tax bracket whose wages in 2025 exceed the new threshold makes the maximum contribution of $11,250 in 2026. Previously, the contribution could have been made on a pre-tax basis, reducing the individual’s taxable income and federal income tax by approximately $2,700.
Do I need to take additional steps to make catch-up Roth contributions?
“It depends on your employer’s pension plan and how it is administered,” said Fidelity’s Ms. Capek. Some employers automatically shift contributions in excess of the standard catch-up amount into the Roth component of the plan, while others may require affirmative consent from employees before moving the funds to a Roth component.
What happens if my employer doesn’t offer a Roth 401(k)?
If an employer’s retirement plan does not provide a Roth option, employees who earn more than the threshold cannot make catch-up contributions to their work-based plan, said Hattie Greenan, spokeswoman for the Plan Sponsor Council of America, a nonprofit group that represents employers. However, many employers have added the Roth version in response to the new tax law, she said. About 96 percent of 401(k) plans offered Roth accounts in 2024, the organization’s data shows, and that share was likely “very close to 100 percent,” she said now.