By Brandy Branstetter, CFP®
2026 will usher in a significant change to how high earners contribute to their employer-sponsored 401(k) plans going forward. Starting January 1st, individuals aged 50 and over who earned more than $145,000 in FICA wages in the prior year (indexed each year) must make all catch-up contributions to their workplace plan on an after-tax Roth basis and will no longer be able to deduct these contributions for tax purposes.
This switch has several implications for high-income, wealth-building professionals; it may impact tax planning, investment strategies and other long-term planning objectives. Let’s delve a little deeper into the new rule and discuss its impact and the action steps we recommend.
More On the Rule Change and Its Impact
The change (part of the SECURE 2.0 Act) has several implications for high earners’ retirement savings strategies:
- Strategic tax planning: Without the immediate tax deduction, high earners will need to rethink their tax strategy. They will forgo a current-year tax break in exchange for tax-free withdrawals in retirement. Missing out on the ability to defer taxes on the $8,000 (2026) catch-up contribution could mean losing up to $3,000 in potential tax savings for those in the top tax bracket.
- Reduced take-home pay: Since Roth contributions are made with after-tax dollars, eligible high earners who already max out their catch-up contributions could see a reduction in their current take-home pay via higher withholding.
- Emphasis on tax-free growth: The rule forces a trade-off: a lower tax bill today versus tax-free growth decades from now. For those who expect to be in a higher tax bracket in the future, the long-term tax-free growth of a Roth account can be more advantageous.
- Employer plan changes: If a company’s 401(k) plan does not offer a Roth option, affected high-income employees will be unable to make any catch-up contributions at all. This has prompted many employers to add Roth features to their plans.
Action Steps for High Earners
For those subject to the new mandatory Roth rule, we suggest several planning strategies to consider:
- Don’t skip catch-up contributions: Even without the immediate tax deduction, we still encourage making catch-up contributions. The tax-free growth in a Roth account over time can provide a significant benefit to your lifestyle objectives and ambitions. The future is unknown, but it’s hard to envision that tax-free financial resources will be anything but positive in the years to come.
- Check with your employer plan: If your plan doesn’t have a Roth component, advocate to have the plan amended. You’re likely not the only one with a vested interest in this at your workplace and amendments must be made by year-end. Also check to see how the new Roth-only rule will affect employer matching; some employers only make pre-tax matching contributions.
- Rebalance your contributions: Adjust the mix of your pre-tax and after-tax contributions to account for the new Roth-only catch-up rule. This is a critical step for maximizing long-term tax efficiency.
- Self-employed individuals, plan your compensation carefully: If you pay yourself W-2 wages, keep your total wages under $145,000 to maintain eligibility for pre-tax catch-up contributions within your retirement deferrals. This is particularly important if you are contributing to an individual 401(k) plan where a Roth option may not be set up.
- Explore nonqualified deferred compensation (NQDC) plans: If your employer offers a NQDC plan, you can use it to make pre-tax catch-up contributions. These plans are not subject to the mandatory Roth rule and offer a way to reduce your current-year taxable income.
- Prioritize other tax-advantaged accounts: Consider shifting your savings strategy to other vehicles like a health savings account (HSA) to gain triple-tax advantages (tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses).
- Take advantage of the higher limits: For those aged 60 to 63, the SECURE 2.0 Act also provides for increased “super” catch-up contribution limits, though these must be Roth for high earners.
Significant changes to tax laws we’ve enjoyed for many years aren’t pleasant, but when they happen, it’s often best to take a deep breath and work around the issue to chart an alternative course that still gets you to your destination. If you would like more clarity on how this “catch-up” change affects you and your life’s aspirations, reach out to us and let’s have a discussion.
Your Guide Toward Financial Freedom and a Lasting Legacy
At Beyond Wealth, we focus on the most efficient strategies to help you realize your objectives and life aspirations. Our independent advisory firm offers an array of services—focused on our clients—to help pursue a confident financial future.
As fiduciary advisors, our goal is aligned with yours: Connect your wealth to your life’s objectives and empower you to choose and follow the financial road that feels right for you and your family.
Are you ready to take charge of your financial future? Give us a call (913) 871-7980 or email brandy@beyond-wealth.com to schedule an introductory meeting and start this year on a better financial path toward your own vision.
Frequently Asked Questions
1. What is the new Roth “catch-up” rule and how does it impact high earners?
Starting January 1, 2026, individuals aged 50 and over whose FICA wages exceeded $145,000 in the previous calendar year (indexed annually) will be required to make all catch-up contributions to their 401(k) plans on a Roth basis, meaning after-tax contributions. This means your 2025 earnings will determine whether you’re subject to this rule in 2026. This change eliminates the ability to deduct these contributions for tax purposes, impacting tax planning and take-home pay.
2. How will the Roth “catch-up” rule affect my tax strategy?
Without the immediate tax deduction, high earners will lose out on potential tax savings now in exchange for tax-free withdrawals in retirement. This could mean missing up to $3,000 or more in potential tax savings for those in the highest tax brackets, depending on the amount of their catch-up contributions. However, Roth contributions offer the benefit of tax-free growth and tax-free withdrawals in retirement, which may be advantageous depending on your long-term tax situation.
3. What actions should high earners take to adjust to the new Roth “catch-up” rule?
High earners should take these important steps:
- Check your plan’s Roth option immediately: If your 401(k) plan doesn’t offer a Roth option, you won’t be eligible to make catch-up contributions at all under the new rule. Contact your HR or benefits administrator to confirm.
- Don’t skip catch-up contributions: Even without the immediate tax deduction, Roth accounts offer long-term tax-free growth that can be highly valuable.
- Rebalance your contribution strategy: Optimize your mix of pre-tax and Roth contributions for maximum tax efficiency.
- Consider the “super catch-up” provision: If you’re between ages 60-63, you may be eligible for enhanced catch-up contributions up to 150% of the standard limit.
- Explore complementary strategies: Look into other tax-advantaged options like NQDC plans, HSAs, or taxable brokerage accounts to diversify your retirement savings approach.
About Brandy
Brandy Branstetter, CFP® is Principal & Wealth Advisor at Beyond Wealth, a fiduciary financial advisory firm based in Overland Park, Kansas. Beyond Wealth is dedicated to empowering clients to make confident and meaningful financial decisions. Specializing in helping mid-career professionals and business owners navigate their work-optional lifestyle, the firm provides personalized comprehensive wealth management services to the Kansas City metro area and beyond.
Brandy’s approach is collaborative and values-driven, helping clients pursue financial independence while aligning their plans with their unique goals and aspirations. She began her financial career in 2005 and became an advisor in 2012. Throughout her journey, she noticed a disconnect in how many firms communicated with female clients, inspiring her to establish a practice focused on genuinely engaging and supporting women in their financial journeys. In 2012, she co-founded Beyond Wealth with a mission to provide clients—especially female professionals and entrepreneurs—the guidance needed to navigate their financial complexities. Together with her business partner, Andrew, Brandy developed the “Good, Better, Best” financial planning framework to deliver tailored strategies that help clients achieve meaningful progress towards their financial aspirations.
Brandy earned a BSBA in Finance from the University of Tulsa and holds the CERTIFIED FINANCIAL PLANNER® designation. Outside of work, she enjoys spending time with her husband, Jon, and their two children, Alexa and Ethan. In their downtime, they love golfing, exploring new vacation spots, and attending live events—everything from rock concerts to Broadway musicals. A dedicated sports enthusiast, Brandy especially enjoys watching Oklahoma Sooner football and cheering on the Kansas City Chiefs. With a lifelong dream of living by the beach, she’s always planning her family’s next big adventure. To learn more about Brandy, connect with her on LinkedIn.
