Key Points
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If you’re over 50, you’re allowed to make catch-up contributions in a 401(k).
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Higher earners are now limited to Roth contributions.
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You may not love losing your up-front tax break, but Roth 401(k)s offer plenty of benefits.
If you’re over 50, catch-up contributions can be a great way to accelerate your retirement savings. In fact, catch-up contributions actually start at 50. And this year, you may be eligible to put an additional $8,000 into your 401(k) on top of the regular $24,500 limit.
But depending on your income, you may need to do things differently this year. Thanks to an important 401(k) rule change, catch-up contributions aren’t as straightforward as they used to be.
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Is your catch-up contribution limited to a Roth this year?
Traditional 401(k)s give you a tax break on the money you contribute to your retirement savings, while Roth 401(k)s don’t. If you’re a higher earner, a traditional 401(k) could make more sense, because you may end up in a lower tax bracket once retirement rolls around.
But thanks to a new rule, if your wages were at least $150,000 in 2025, any catch-up contribution you make in your 401(k) has to be in a Roth. That means you’ll pay taxes on the money now instead of receiving a tax deduction this year. It also means that if your company’s retirement plan doesn’t have a Roth option, you may not be able to make a catch-up contribution at all.
A Roth 401(k) could make retirement more flexible
At first, being limited to a Roth 401(k) for your catch-up contribution may seem like a raw deal. But there are big benefits to having money in one of these accounts.
First, Roth 401(k)s let your money grow tax-free, and withdrawals in retirement are not taxed. Second, with a Roth 401(k), you won’t have to worry about required minimum distributions.
Plus, the new rule applies to catch-up contributions only. So if you’re able to max out a 401(k) this year at $32,500, the first $24,500 can still go in on a pretax basis if that’s better for your financial situation.
Should you ditch your catch-up contribution due to the new rule?
Not necessarily. While losing the up-front tax break might sting, you might appreciate having funds in a Roth account during retirement. And when you think about it, you’re simply shifting when you pay taxes. You’re not actually giving up a tax break.
Still, you may want to consult a financial advisor if this rule change impacts you. They may be able to help you find other ways to lower your tax bill in the near term while staying on track with retirement savings.
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