Retirement planning looks different for everyone, and new rules routinely emerge that present additional opportunities for tax-efficient saving. For higher-income individuals, there are often broad considerations when deciding how much to save, where to save it, and how those savings can be taxed in the future.
One of the most notable changes under SECURE 2.0 affects how certain catch-up contributions are made. While the new rule does not eliminate the ability to save more in a 401(k), it changes the tax treatment of catch-up contributions for some higher-income employees.
Here are a few things high earners should know:
- Your regular 401(k) contribution can still be pre-tax. In 2026, the standard employee contribution limit is $24,500. Most people can choose whether to make those regular contributions on a traditional pre-tax basis, a Roth basis, or some combination of the two, depending on what their plan allows.
The new 401(k) rule applies only to catch-up contributions, which are available to people age 50 and older.
- Catch-up contributions may need to be Roth. Because catch-up contributions are available only to people age 50 and older, certain higher-income employees who earned more than $150,000 in wages from their employer in the previous year will generally be required to make these contributions as Roth (assuming their employer's plan offers a Roth option). This means you make these contributions with after-tax dollars rather than reducing taxable income today.
- You can still save more for retirement. Paying taxes today is not necessarily a disadvantage. Roth contributions can create more flexibility later in retirement because qualified Roth withdrawals are generally tax-free.
For someone who accumulated most of their retirement savings in traditional pre-tax accounts, Roth contributions may help create a better balance between taxable and tax-free retirement income—which comes in handy when managing future withdrawals, investment income, or other retirement decisions.
- Your employer’s plan still matters. Not every employer-sponsored retirement plan works the same way. If you expect to make catch-up contributions in 2026, check with your human resources department or plan administrator to confirm whether your plan offers Roth contributions, how it identifies employees subject to the new rule, and whether you need to update your payroll elections.
- Don't confuse "high earner" with "highly compensated employee." The IRS uses specific definitions and thresholds for different retirement plan rules. For example, the $150,000 prior-year wage threshold applies to the new Roth catch-up requirement in 2026, while the highly compensated employee (HCE) definition applies to other retirement plan purposes.Generally, an employee may be considered an HCE if they owned more than 5% of the business during the current or preceding year, or if they received more than $160,000 in compensation in the preceding year. Employers may also elect to use a top-paid-group limitation for the compensation test. The rules can be complicated, so it's important to understand how they apply to your situation rather than assuming every high-income employee is treated the same way.
As with most financial planning decisions, the right strategy depends on more than one tax rule. Your income, current tax bracket, retirement timeline, and future spending goals should all be part of the conversation when it comes to contributions.
As we move toward the final quarter of the year, now is a good time to review your 401(k) contributions and make sure your savings strategy still supports your larger financial goals. Reach out to one of our team members if you have questions about how these new rules may apply to you and your financial goals.
This material is provided for general educational and informational purposes only and is not intended as individualized investment, tax, or legal advice. Contribution limits, wage thresholds, plan provisions, and tax rules are subject to change. Eligibility for catch-up contributions and Roth treatment depends on the terms of the employer-sponsored retirement plan and the participant’s individual circumstances.
Distributions from traditional retirement accounts are generally subject to ordinary income tax and may be subject to an additional 10% federal tax if taken before age 59½, unless an exception applies. Roth contributions are made with after-tax dollars. Qualified Roth distributions are generally federal income tax-free, provided applicable requirements are satisfied. State tax treatment may vary. Consult your plan administrator and qualified tax professional regarding your specific circumstances.