This 401(k) change could soon impact catch-up contributions

There’s a big change coming for 401(k) plans that could impact a popular tax break for higher earners, experts say.

For 2025, workers can defer up to $23,500 into 401(k) plans, and employees age 50 or older can save an extra $7,500, known as “catch-up contributions.” That catch-up limit jumps to $11,250 for workers age 60 to 63.    

Typically, catch-up contributions can be traditional pretax or after-tax Roth, depending on what your 401(k) plan allows. But certain higher earners soon won’t have a choice, thanks to a change enacted via the Secure 2.0 Act of 2022.

Starting in 2026, 401(k) catch-up contributions generally must be after-tax Roth if you earned more than $145,000 from your current employer during the previous year.

In the meantime, older workers can choose between traditional and Roth 401(k) catch-up contributions, assuming their plan offers both options.

While traditional deferrals offer an upfront tax break, you will pay regular income taxes on future withdrawals. By comparison, there is no tax deduction for Roth contributions, but the funds grow tax-free.

“Now is the time to work with your advisor or tax preparer to run multi-year tax projections,” said certified financial planner Patrick Huey, owner of Victory Independent Planning in Portland, Oregon. 

This could help you decide whether to accelerate pretax catch-up contributions through 2025 or embrace Roth contributions sooner, experts say.

In 2024, nearly all retirement plans offered catch-up contributions, but only 16% of eligible workers made these deferrals, according to a 2025 Vanguard report based on more than 1,400 plans and nearly 5 million participants.

Most catch-up contribution participants earned $150,000 or more, the report found.

However, the choice between Roth vs. pretax catch-up contributions may depend on several factors, including current and expected future tax brackets, experts say. You may also consider your effective tax rate — total tax relative to earnings — in retirement or legacy planning goals.

The “key takeaway” for investors is, “do not sit on the sidelines” as the rules change, said CFP Jared Gagne, assistant vice president and private wealth manager with Claro Advisors in Boston.