The Internal Revenue Service (IRS) has made some changes to ROTH IRA rules. Until this year, people who are age 50 and over who are saving for retirement could make a 401(k) catch-up contribution into either (1) a pre-tax account and/or (2) a Roth 401(k) account.
A new rule in the SECURE 2.0 Act became effective on January 1, 2026, that could impact your 2026 contributions. Catch-up contributions for plan participants who earn $150,000 (FICA wages) or more in (2025) will be limited only to a Roth 401(k) catch-up contribution.
Impact of change. This new catch-up requirement could have a negative impact on your taxes. If you were counting on making your catch-up contribution into a 401(k) pre-tax account, you’ll be losing the up-front tax break on that money.
That doesn’t mean you won’t get to enjoy other tax benefits. Roth 401(k)s offer tax-free gains on your investments and tax-free withdrawals. They also don’t force you to take required minimum distributions (RMDs) allowing you more freedom with how you manage your savings later.
But it’s important to understand how the rules for catch-up contributions are changing. That way, you can work with a tax or financial advisor if you need to make any adjustments.
Remember, the new rules for higher earners apply to catch-up contributions only. If you’re in that category, you can still make your regular $24,500 contribution to your 401(k) on a pre-tax basis if you choose. But given the new rule it may make sense to contribute your entire 401(k) contribution Roth-style if you can manage it from a tax perspective. Again, it is recommended individuals consult a tax or financial advisor to determine the best mix of pre-tax and/or Roth contributions for their specific situation.
Having more of your savings available to you tax-free in retirement could end up being a huge deal, especially if tax rates rise in the future.
To view and/or make changes to your account login to netbenefits.com or call Fidelity 800-835-5095.
