MW IRS rules now say 401(k) catchups for high earners have to be in a Roth. Is it still worth it?

By Beth Pinsker

Will workers earning more than $145,000 want to put those retirement contributions in a post-tax Roth account? Their answer might surprise you.

Would you rather pay tax now and have tax-free growth, or defer taxes now and pay in retirement?

The IRS really means it this time when they say that high earners will have to start paying tax soon on their catch-up 401(k) contributions and then deposit them into workplace Roth accounts. Sort of. The rule originally appeared in the 2022 Secure Act, but was delayed. New guidance issued in September gives final rules, which allows companies to put the process into effect in 2026, but also says it applies to 2027 and beyond.

The new year will bring in several changes to 401(k) contributions for older workers, most notably, a "super catch-up" for those aged 60 to 63, which allows contributions up to 150% of the regular catch-up amount. For 2025, the statutory employee contribution is capped at $23,500 and the catch-up for those 50+ is $7,500, which will likely increase in 2026 when announced later this year. The 2026 super catch-up would be $11,250 (including the regular catch-up) and for those who make over $145,000, all those catch-up contributions would have to be made post-tax into Roth accounts.

The Wall Street Journal estimated that the tax burden for a worker making the full super catch-up contribution in the 35% bracket - current income $250,525 to $626,350 - would be about $4,000 in upfront taxes.

Fair deal or not? Legislators made this switch as a way to get more tax revenue, because it requires high earners to pay taxes now, rather than giving them more deferrals, so it's good for them on that score.

But what's the benefit for individuals to motivate them to make super catch-up contributions? The money they contribute would grow tax-free from that point forward, with no required minimum distributions (RMDs) due, and also pass to heirs tax-free, with the accounts needing to be emptied by heirs in 10 years.

If you look at the numbers, this is largely already happening, but only in a very small niche of retirement savers. Vanguard's annual "How America Saves" report shows that 14% of workplace savers hit the maximum allowed contribution in 2024, which is the first step to getting to catch-ups. Of those eligible by age, 16% made catch-up contributions and 18% used any Roth features, and most of these people were making more than $150,000.

It's fundamentally the same group of high-income older workers who are siphoning off as much as they can into Roth 401(k) accounts, trying to mitigate taxes later in retirement. Funds in tax-deferred retirement accounts are subject to RMDs, now for most people must be taken at age 73, and that can lead to big tax bills down the road because the amount you withdraw is counted as income for the tax year. If you have a $1 million balance in a pretax account, that could be roughly $40,000 to start, but would peak at about $130,000 by the time you hit your 90s, with no other depletions. If you have much more, like $6 million, your RMD at 80 could be $300,000.

Retirement planners usually assume you will hit lower tax rates in retirement, but that isn't the case for many wealthy people anymore.

"It used to be that if I'm in the 35% now, I could assume that when I retired I'd be in the 12% bracket, but nobody feels that way anymore," said Ed Murphy, the chief executive of Empower, which serves the second-largest retirement-saver client base after Fidelity. "Now people might think, if I'm in the 35% bracket now, it could be 50% in retirement."

New rules could mean fewer contributions

That tax-bracket math means that people who were already making catch-up contributions were likely to be making them as Roth anyway, so if the new rules cause any behavioral change, it could be in the opposite direction: People who might have made catch-up contributions will be turned off. Why pay the tax and lock up the money in a Roth 401(k) account, which is difficult to withdraw directly? You could just as well keep the money in a brokerage account at that point. That tax advantage of a traditional 401(k), where you can defer taxes on a portion of income until retirement, is a powerful draw.

Murphy said Empower has surveyed participants and asked focus groups about this over the years and the answer is always the same when it comes to taking away the tax advantage of 401(k) plans, especially if you propose "Rothifying" the entire system and not just catch-ups.

"There's a discernible change in behavior if you took away pretax advantages and people overwhelmingly said it would affect their savings rate negatively," Murphy said. And that, in effect, is the opposite of what the U.S.'s employer-centric retirement system is meant to do. "What we're trying to do is not create more dependency on government but instead through a private savings system, drive more independence."

The drawback to fewer people making catch-up contributions is the impact on retirement readiness. However, it's still a niche issue at that point, since so few people are in a position to reach that level anyway. The key driver of whether an employee makes those contributions is salary level. A worker making $100,000 would be contributing 23% of their salary just to max out to the regular employee contribution level. For those in the super catch-up zone at that salary level, it would be a $34,750 annual contribution, and would then be roughly 35% of income. That's a lot to ask, when people have other spending concerns like mortgages, college tuition and heavy inflation on food and gas.

"I don't know that you will ever see widespread adoption," Murphy said. "There's still this mindset that 'I'm already putting money away. To do more is coming at the expense of something that I'd want to do near term.' It's not an easy issue."

Got a question about investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money? You can write to me at beth.pinsker@marketwatch.com. Please put "Fix My Portfolio" in the subject line.

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-Beth Pinsker

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September 24, 2025 16:11 ET (20:11 GMT)

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