Since 2002, retirement savers age 50 and over have had the option of making \u201ccatch-up\u201d contributions to their 401(k) plans, which stack on top of the regular limits for employee contributions to tax-deferred retirement plans. The amounts were limited to $1,000 per year when they first came out but expanded to $7,500 by 2025.<\/p>\n
In addition, contributions to tax-deferred retirement plans are excluded from adjusted gross income, resulting in a lower tax bill on income that would otherwise be taxed. For example, a 50-year-old employee who contributed the $23,500 maximum to her retirement plan in 2025 plus the $7,500 catch-up amount would have effectively shielded $31,000 from current-year taxes, resulting in a tax break of $7,440 for someone in the 24% tax bracket.<\/p>\n
New for 2026: One tax break goes away with Secure 2.0<\/p>\n
But starting this year, these tax breaks will be off-limits for some retirement savers. That\u2019s because of a new provision from\u202f Secure 2.0<\/a> \u202fthat went into effect on Jan. 1, 2026. Individuals who earned more than $145,000 in prior-year wages from their current employer (indexed for inflation) will only be able to make catch-up contributions to a Roth 401(k), meaning the contribution amount will be subject to taxes upfront.<\/p>\n For a higher-earning 50-year-old who contributes the $8,000 maximum catch-up amount to a Roth 401(k) in 2026, those dollars won\u2019t be deducted from adjusted gross income. As a result, taxes paid for this year would be about $1,920 higher (assuming a 24% tax bracket) than they would have been if the catch-up amount had gone to a traditional 401(k). Paying taxes upfront makes these contributions less attractive than they were previously, especially for retirement savers who expect to be in a lower tax bracket in retirement.<\/p>\n Why you might still want to make catch-up contributions<\/p>\n Even without a tax break<\/a>, you\u2019ll probably still want to contribute the extra amount if you\u2019re running behind on retirement savings. If you contribute the full catch-up amount (currently $8,000) starting at age 50 and continue doing so through age 65, you could make total contributions of $120,000 or more over that period. If you\u2019re between 60 and 63, you can contribute even more as a \u201csuper catch-up\u201d of up to $11,250 per year, with contributions for higher earners subject to the same rules as the regular catch-up contributions.<\/p>\n A 50-year-old who maxes out on catch-up and super catch-up contributions could end up with about $200,000 (assuming a 5% annual return) in the Roth 401(k) by age 65. <\/p>\n The tax advantages of a Roth 401(k)<\/p>\n 1. In contrast to a traditional 401(k) or IRA, there\u2019s no tax hit when money is withdrawn to cover spending in retirement, and the account isn\u2019t subject to required minimum distributions. As long as the distribution is \u201cqualified\u201d (taken after age 59\u00bd from an account that has been open for at least five years), the proceeds aren\u2019t subject to ordinary income taxes or capital gains taxes.<\/p>\n 2. Roth 401(k)s also allow for tax-free growth; annual distributions from income or capital gains aren\u2019t subject to taxes. As a result, if you\u2019re comparing saving in a taxable account versus contributing to a Roth 401(k), the Roth option would be more tax-efficient.<\/p>\n 3. In contrast to a traditional IRA or 401(k), distributions from a Roth account don\u2019t result in other income adjustments, such as the net investment income tax or the income-related monthly adjustment amount that results in surcharges for Medicare premiums.<\/p>\n 4. Finally, a workplace Roth 401(k) can later be rolled into a Roth IRA, which can be useful if you\u2019re planning to make Roth conversions after retirement.<\/p>\n Why you might want to skip making catch-up contributions<\/p>\n It\u2019s important to note that funds contributed to a Roth 401(k) may not be eligible for matching contributions from your employer. Employers were previously required to treat matching contributions as pretax contributions, meaning that matching contributions to a Roth 401(k) weren\u2019t allowed. Secure 2.0 loosened up these restrictions, but not all employers have updated their plans.<\/p>\n On balance, though, I\u2019d lean in favor of continuing to make catch-up contributions if you can, even though they no longer help reduce taxable income before retirement.<\/p>\n One final note: If you qualify as a higher earner but your employer\u2019s plan doesn\u2019t offer a Roth 401(k) option, you won\u2019t be able to make these catch-up contributions.<\/p>\n ______<\/p>\n This article was provided to The Associated Press by Morningstar. For more retirement content, go to https:\/\/www.morningstar.com\/retirement<\/a>.<\/p>\n Amy C. Arnott, CFA,<\/a> is a portfolio strategist for Morningstar and co-host of The Long View podcast<\/a>.<\/p>\n Related Links<\/p>\n 4 Simple Ways to Boost Your Safe Withdrawal Rate https:\/\/www.morningstar.com\/retirement\/4-simple-ways-boost-your-safe-withdrawal-rate<\/a><\/p>\n Retirees: Take the Risk Out of Your Income With a TIPS Ladder<\/p>\n