A major retirement-plan change is now in force for some older, higher-paid workers, and the costly mistake is assuming last year’s 401(k) catch-up election can stay on autopilot. Beginning in 2026, many employees age 50 and older who used to make pre-tax catch-up contributions must now make those extra contributions as Roth instead. That matters because Roth catch-up dollars are taxed upfront. A worker who does nothing could wind up with payroll elections that no longer match the rules, a different tax bill than expected, or a smaller take-home paycheck than planned. The rule is straightforward on paper, but the way it hits real workers can be surprisingly easy to miss.
What changed in 2026
The shift comes from SECURE 2.0, the 2022 retirement law that required catch-up contributions from certain higher earners to be made as Roth contributions rather than pre-tax. The IRS later gave employers and recordkeepers a two-year administrative transition period, which ran through the end of 2025. That runway is over, and 2026 is the first year many plans must actively apply the rule in practice.
For 2026, the trigger is based on an employee’s 2025 wages from the employer sponsoring the plan, not on what the employee expects to make in 2026. The relevant threshold for that lookback is $150,000. If an employee is age 50 or older and had more than $150,000 in those prior-year wages, any 2026 catch-up contributions generally must be designated as Roth.
| 2026 401(k) number | Amount |
|---|---|
| Regular employee deferral limit | $24,500 |
| Standard catch-up limit for age 50+ | $8,000 |
| Special catch-up limit for ages 60 to 63 | $11,250 |
| Roth catch-up wage threshold based on 2025 wages | $150,000 |
The IRS has also made clear that final regulations exist, but that plans may rely on a reasonable, good-faith interpretation of the statute before the regulations’ broader applicability date. In other words, employers still have to operate under the law now even though some technical regulatory provisions phase in later.
Who is actually affected
This is where many workers can get tripped up. The threshold is tied to prior-year wages from the same employer, and the IRS framework looks to FICA wages, generally Social Security wages reported on Form W-2, not simply whatever a worker thinks of as annual compensation. That distinction matters for employees with unusual pay setups, job changes, or mixed compensation. A worker who earned $151,000 in 2025 from one employer and turns 50 or older in 2026 may be forced into Roth catch-up treatment under that employer’s plan, even if 2026 income falls. On the other hand, a worker who changes jobs may not be subject to the rule under the new employer’s plan if the prior-year wage test is not met there. For people with multiple employers, the result can vary by plan because the test is applied on an employer-by-employer basis, subject to certain aggregation rules the final regulations allow in limited cases. That backward-looking design is exactly why the mistake is so common. Workers often think, “My salary is lower this year,” or “I already changed jobs,” and assume the Roth requirement no longer applies. In many cases, that assumption is wrong.
Why the mistake can be costly
The first cost is administrative. Some plans are allowed to use a deemed Roth election for affected participants, while others may require an affirmative election change or apply different correction procedures if pre-tax catch-up dollars are contributed when Roth was required. The result is that a worker who leaves an old pre-tax catch-up election in place should not assume every payroll system will handle the problem the same way. The second cost is tax-related. Pre-tax catch-up contributions reduce current taxable income. Roth catch-up contributions do not. So when a higher earner who is used to making pre-tax catch-up contributions is shifted into Roth, current-year federal taxable income can rise even though retirement savings continue. In many states with an income tax, state taxable income can rise as well. That does not automatically make Roth treatment bad. Over time, Roth money can produce tax-free qualified withdrawals, which may be attractive for workers who expect to face higher tax rates in retirement or who want more tax diversification later. But that long-term upside does not erase the near-term shock of a higher current tax bill or lower net pay. For households already managing withholding closely, the switch can have spillover effects. A larger taxable paycheck can affect cash flow, estimated tax planning, and decisions about whether to keep maxing out catch-up contributions at all.
The rule hits even harder for workers ages 60 to 63
SECURE 2.0 also created a higher catch-up limit for workers ages 60, 61, 62, and 63. In 2026, that special catch-up amount is $11,250, well above the standard $8,000 catch-up limit for workers age 50 and older. That is good news for late-career savers trying to build retirement balances fast, but it also raises the stakes of the Roth requirement. A 61-year-old employee over the wage threshold can shelter more money overall, yet a larger share of that late-career savings may now be taxed upfront if it falls into mandatory Roth catch-up territory. For that group, the payroll impact is not trivial. The headline mistake is not just failing to click the right election box. It is failing to recognize that a larger catch-up opportunity can also create a larger current tax hit.
How workers can avoid the catch-up mistake
The first step is to verify whether the employee crossed the 2025 wage threshold with the employer sponsoring the plan. That means checking the right wage figure, not guessing from salary alone. The second step is to review the 401(k) election itself. Workers who made pre-tax catch-up contributions in prior years should confirm whether the plan now defaults affected catch-up dollars to Roth, requires a fresh election, or uses another plan-specific procedure permitted under IRS rules. The third step is tax planning. If mandatory Roth catch-up contributions are now in play, withholding may need to be adjusted so the worker is not surprised later. Some employees may decide to keep contributing the maximum anyway because the long-term Roth benefit is worth the trade-off. Others may scale back catch-up contributions to protect cash flow. The important point is that doing nothing is no longer a safe strategy. In 2026, older workers who crossed the wage threshold in 2025 need to know whether their catch-up dollars are still landing where they expect. That small election detail can change both a retirement plan contribution and a tax return in the same year. According to the IRS summary of the final rule and the Federal Register text, employers and plan administrators have had to update payroll and plan operations to apply the Roth catch-up requirement correctly. The 2026 limit figures used here come from the IRS contribution-limit announcement and related IRS retirement-plan guidance.
Paul Anderson is a finance writer and editor at The Financial Wire. He has spent seven years writing about investment strategies and the global economy for digital publications across the US and UK. His work focuses on making sense of economic policy, cost-of-living issues, and the stories that affect everyday Americans.
