A Quiet 2026 Change That Could Impact Your Taxes This Year

Beginning this year, a new rule requires high-income earners (those making over $150,000) to put their catch-up retirement contributions into a Roth (after-tax) account instead of a traditional pre-tax account. While this may sound like a small change, it alters a long-standing strategy: reducing taxes today and deferring them until retirement, when income, and often tax rates, are lower.

Catch-up contributions allow individuals age 50 and older to contribute additional funds to retirement accounts like 401(k)s. Historically, these contributions were made pre-tax, helping lower taxable income in the current year. For many high earners, this was a consistent way to manage annual tax liability.

Under the new rule, those above the income threshold must now make these contributions after taxes are paid. While the funds can still grow and be withdrawn tax-free in retirement if structured properly, the immediate tax benefit is lost – shifting taxation from the future to today.

So – Who does this affect?

Starting in 2026, this applies if:

You are age 50 or older, and

You earned more than $150,000 in 2025

If so, your catch-up contributions must be Roth (after-tax). This applies to 401(k), 403(b), and 457(b) plans, but not IRAs.

Contribution limits:

Under 50: up to $24,500

Age 50–59 or 64+: up to $32,500 (includes $8,000 catch-up)

Age 60–63: up to $35,750 (enhanced $11,250 catch-up)

Examples:

Age 52, $200K income = Roth required, max $32,500

Age 61, $180K income = Roth required, max $35,750

Age 52, $120K income = pre-tax or Roth allowed, max $32,500

At first glance, this may seem like a disadvantage – particularly for those in this age range who have grown accustomed to lowering their taxable income each year. An increase in taxable income can have ripple effects, potentially pushing income into higher brackets, affecting deductions, or even impacting areas like Medicare premiums later in retirement (see our article from last month’s Wind Vane!).

However, Roth treatment is not inherently negative. Paying taxes now can be beneficial for those who expect similar or higher tax rates in retirement or want to reduce future required minimum distributions. Roth accounts also provide tax-free income flexibility later in life. Generally, you can take money out tax- and penalty-free once you’re at least 59½ and the account has been open for five years. Additionally, as of 2024, Roth 401(k)s are no longer subject to required minimum distributions like their traditional, pre-tax, counterparts are.

What this change does do is reduce control. High-income earners have typically had flexibility in deciding when to pay taxes, and, now, part of that decision is being made for them.

When changes like this occur, it’s worth stepping back and asking: is your overall tax strategy still as intentional as it should be?

Often, the opportunity isn’t in the rule itself, but in what it prompts – revisiting strategies like Roth conversions, income timing, and how different parts of a financial plan work together over time.

While this change may not require a dramatic shift on its own, it serves as a reminder that planning is not static. As the rules evolve, so should the strategy behind them.

I hope everyone is getting to enjoy this beautiful Spring.

Cheers!