URGENT: Is Your 2026 Catch-Up Contribution Now A Mandatory Roth?
The Clock is Ticking: Why High Earners Must Update 401(k) Payroll NOW
For years, employees aged 50 and older have had the option to make additional “catch-up” contributions on a pre-tax basis, providing a valuable tax deduction in their peak earning years.
That changes January 1, 2026
A critical provision of the SECURE 2.0 Act is now in full effect, mandating a tax shift for a specific group of savers. If you fall into the category of a high-income earner, you must update your payroll elections immediately, or risk losing the ability to make these powerful catch-up contributions altogether this year.
This is not a suggestion; it is a compliance requirement that impacts your retirement savings strategy starting with your first paycheck of the year.
What Changed and Who is Impacted?
The SECURE 2.0 Act requires mandatory Roth treatment for catch-up contributions made by certain participants.
You are subject to this rule if you meet two criteria:
- Age 50 or Older: You must be eligible to make catch-up contributions in 2026.
- High-Income Earner: You earned more than $150,000 in FICA wages (as reported in Box 3 of your Form W-2) from the employer sponsoring the plan in the prior year (2025).
The Mandatory Shift: If you meet these criteria, any catch-up contributions you make in 2026 must be designated as a Roth (after-tax) contribution. The pre-tax, tax-deductible option for these contributions is no longer available to you.
Why This is URGENT
The deadline to begin implementing this change is January 1, 2026.
If you are an affected high-income earner and your payroll system is still directing your catch-up contributions to a traditional (pre-tax) account, those contributions may be rejected or treated incorrectly, potentially jeopardizing your ability to hit the maximum allowed contribution for the year.
Furthermore, if your employer’s plan currently does not offer a Roth contribution feature, they may be legally required to bar you from making any catch-up contributions in 2026 to stay in compliance.
We must treat this as a proactive tax planning opportunity. As Registered Investment Advisor, Chuck Henrich explains:
“The shift to mandatory Roth catch-up is an immediate tax event. While we lose the upfront deduction, we gain guaranteed tax-free withdrawals in retirement. The key for high earners is to act proactively: don’t wait for your company to catch an error. Take control of your payroll elections and view this as a forced opportunity to diversify your future tax exposure.”
Your Three Action Steps for January
If you are age 50 or older and a high earner, take these steps immediately:
- Check Your 2025 W-2: Review Box 3 (Social Security Wages) of your 2025 W-2 (which you should receive in early 2026). If that number is over $150,000, you are subject to the new Roth mandate.
- Contact Your HR/Benefits Department: Confirm that your employer’s plan offers a Roth contribution feature and that they have updated their payroll system to designate your catch-up contributions as Roth.
- Update Your Payroll Election: Ensure your 2026 payroll election directs your catch-up amount to the Roth column. This guarantees you capture the powerful savings opportunity correctly and remain compliant.
The window to maximize your retirement savings under the new rules is narrow. Don’t miss this crucial deadline.
Ready to ensure your 2026 contributions are correct? Don’t miss this deadline. Call Southwest Michigan Financial today at (269) 323-7964 to better understand if this impacts you and what to do before January 1.
This blog is created and authored by Chuck Henrich (Content Creator) and is published and provided for informational and entertainment purposes only. The information in the Blog constitutes the Content Creators own opinions and it should not be regarded as a description of services provided by Southwest Michigan Financial, LLC. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this Blog constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. The Content Creator and Southwest Michigan Financial, LLC assumes no responsibility or liability for any consequences resulting directly or indirectly for any action or inaction you take based on or made in reliance of the information, services or materials provided within this blog.
