By Jared Johnson, CFP®
Shareholder, Wealth Manager

Starting in 2026, high-income earners face a significant shift in how catch-up contributions to retirement plans must be structured. Under final regulations issued by the IRS in response to the SECURE 2.0 Act, individuals age 50 and older earning more than $145,000 in prior-year wages will be required to make all catch-up contributions on a Roth basis—post-tax dollars only.

This is more than a procedural change. For affluent individuals navigating complex financial lives, this rule introduces nuanced implications across tax strategy, liquidity planning, and intergenerational wealth design.

The Rule—In Brief

Effective January 1, 2026, employees earning over $145,000 (W-2 wages only) in the previous year will no longer be permitted to make pre-tax catch-up contributions to their employer-sponsored retirement plan. If the plan allows catch-ups, and if the individual qualifies based on age, those additional contributions must go into a Roth account—assuming the plan accommodates Roth contributions.

For 2026, the 401(k)-contribution limit is $24,500 for employees, a $1,000 increase from 2025. Those age 50 and older can contribute an additional $8,000 in catch-up contributions, bringing the total to $32,500. For individuals between the ages of 60 and 63, a special catch-up contribution of $11,250 is available, which can be combined with the elective deferral limit for a total of $35,750.

While the Roth treatment eliminates upfront tax deferral, it offers long-term tax-free growth and distributions—potentially compelling for those expecting to be in higher tax brackets later in life or seeking tax-efficient assets for legacy planning.

Strategic Framing for High-Income Individuals

This policy shift deserves a thoughtful, multi-dimensional response. At Echo Wealth Management, we are advising clients to consider several strategic levers:

1. Tax Diversification as a Hedge Against Future Uncertainty
Most high earners accumulate substantial pre-tax balances in traditional 401(k)s, IRAs, and deferred comp plans. The Roth catch-up requirement—while mandatory—offers a timely opportunity to recalibrate the tax profile of retirement assets. In an environment where future tax policy is uncertain, balancing pre-tax and Roth accounts may provide optionality.

2. Adjusted Cash Flow Assumptions in Pre-Retirement Years
Roth catch-ups reduce current-year take-home pay, since contributions are made post-tax. For executives with structured income and complex cash flow needs, this may necessitate updates to savings targets, compensation strategies, or even charitable giving timing.

3. Implications for Employer Plan Sponsors
Plan sponsors will need to ensure their qualified plans permit Roth contributions; otherwise, they risk disqualifying high-income participants from making catch-ups altogether. This is an area where coordination between clients and their corporate benefits teams may be necessary.

4. Legacy and Estate Planning Benefits
Roth assets are inherently attractive in estate planning: no required minimum distributions (RMDs) during the owner’s lifetime, and tax-free withdrawals for heirs (within inherited Roth IRA guidelines). This shift, while seemingly restrictive, may actually enhance long-term legacy outcomes for those able to reframe it strategically.

Looking Ahead

The Roth catch-up requirement for high earners is a rare case of regulation that feels limiting on the surface but can be used—wisely—as a lever for tax efficiency and greater control over wealth outcomes.

As with most legislative changes, context is everything. The value lies not in the rule itself, but in how intelligently one chooses to respond to it.