In January a large group of workers over 50 saw their net pay drop without a raise, a tax change they recognised, or any deduction they had chosen. Most of them are still saving exactly the same amount into their 401(k).
What changed is the tax treatment of catch-up contributions for higher earners, which became mandatory Roth on January 1, 2026. Seven months in, the pattern of what actually happened is clear enough to be worth reviewing, including a trap that removed some people’s ability to make catch-up contributions at all.
Quick answer
If you are 50 or older and your FICA wages from the employer sponsoring your plan exceeded $150,000 in the prior calendar year, your catch-up contributions must now be Roth. You cannot choose pre-tax.
You can still save the same amount. It goes in after tax rather than before, so your taxable income is higher and your net paycheck is smaller by the tax on the catch-up amount.
Whether it applies to you, precisely
Three conditions, all of which must hold.
- You are catch-up eligible, meaning 50 or older, including the enhanced band at ages 60 to 63.
- Your plan is a 401(k), 403(b) or governmental 457(b).
- Your FICA wages from the employer sponsoring that plan exceeded $150,000 in the previous calendar year.
That third test is more specific than it looks, and the specifics decide real cases.
It is FICA wages, not salary or household income. The figure is Box 3 of your W-2, Social Security wages. That includes bonuses, commissions, taxable fringe benefits, and the value of RSUs vesting, which is why employees with meaningful equity get swept in almost automatically even when their base salary is nowhere near $150,000. The RSU mechanics are in RSUs Vested and Tax Was Withheld.
It is measured per employer, and wages are not combined. Someone earning $100,000 each from a parent company and its wholly owned subsidiary has $200,000 of total FICA wages and is not subject to the rule, even if both companies participate in the same plan. Two separate jobs at $120,000 each produce the same result. Only crossing $150,000 with one employer counts.
No FICA wages means no rule. A partner with only self-employment income reported on a K-1 has no FICA wages and is not caught. Worth noting the reverse trap: someone who was an employee for part of 2025 before becoming a partner may still have crossed $150,000 in FICA wages that year, which pulls them in for 2026.
What it did to a paycheck
The 2026 limits themselves did not shrink. The elective deferral limit is $24,500, the catch-up for 50 and over is $8,000, and the enhanced catch-up for ages 60 through 63 is $11,250 where the plan offers it.
What changed is that the catch-up portion no longer reduces taxable income.
| Marginal rate | Annual tax previously saved on an $8,000 catch-up | Reduction in net pay, spread over 26 pay periods |
|---|---|---|
| 24% | $1,920 | About $74 per paycheck |
| 32% | $2,560 | About $98 per paycheck |
| 35% | $2,800 | About $108 per paycheck |
Someone in the 60 to 63 band contributing the full $11,250 at a 32% rate sees roughly $138 a pay period.
The important thing to hold onto is that the same money still reaches the account. This is not a reduction in your retirement saving, and it is not a fee. It is the deduction moving from now to later, and the balance it produces will be worth more per dollar because qualified withdrawals come out tax free.
The trap that removed catch-up entirely
This is the part that produced the genuinely bad outcomes rather than merely surprising ones.
Employers are not required to offer a Roth option. If a plan has no Roth feature, affected high earners cannot make catch-up contributions at all, because the only permitted route is closed. They are not moved to pre-tax as a fallback. They are simply blocked.
Employees below the threshold in the same plan carry on making pre-tax catch-up contributions as before, which makes the situation feel arbitrary from the inside. Most sponsors amended their plans during 2025 to avoid exactly this, but not all did.
One related point worth knowing: an employer cannot solve this by requiring everyone to use Roth catch-up. That is prohibited. The rule applies to those over the threshold and nobody else.
What to check on your own paperwork
- Look at Box 3 of your 2025 W-2. If it exceeds $150,000 from the employer sponsoring your plan, you are subject to the rule this year.
- Check whether your contributions this year are actually being coded as Roth. If a pre-tax election was left in place and the plan uses a deemed Roth arrangement, it should have been routed automatically. If it was not, there is an error to fix.
- Confirm you are on track to use the full catch-up. Some people, seeing a smaller paycheck in January, reduced their contribution rate without realising why the deposit had changed.
- If your plan has no Roth option and you are over the threshold, raise it with HR. This is fixable by plan amendment and worth pressing on.
- If you changed employer during the year, remember the test looks at prior year wages from the plan sponsor, so your position can differ from last year’s.
On point two, corrections are unpleasant but not catastrophic. Employers fix errors by reclassifying contributions as Roth and adjusting payroll records, which can mean corrected tax forms and, in some cases, an amended return. Finding it in August is much better than finding it in February.
Is being pushed into Roth actually bad?
Worth answering honestly rather than treating the rule as a straightforward loss.
The case against: you lose a deduction in your peak earning years, when your marginal rate is likely at its highest, and pay tax at that rate on money you will not touch for years.
The case for: Roth balances grow tax free, they are not subject to required minimum distributions, they do not add to provisional income in retirement, and therefore do not push more Social Security into taxable income or raise Medicare premium surcharges. Those last points matter more than most people expect, and are explained in Retiree Paycheck Taxes.
For someone with a large traditional balance already, a forced allocation into Roth is arguably useful diversification against future tax rates. For someone certain their retirement rate will be much lower, it is a genuine cost. The general framework is in Traditional vs Roth 401(k).
Either way it is not optional, so the useful response is to plan around it rather than argue with it.
Before January
Two things are worth doing in the remaining months. Check your 2026 FICA wages as they stand, because they determine whether the rule applies to you in 2027, and a large bonus or vest later this year can pull you over the line for next year.
And review your withholding, since losing a deduction you had for years changes your full-year tax picture. If nothing else on your W-4 moved, this alone may have left you slightly short. The wider year-end list is in The 2026 Tax Reset Checklist, and the limits themselves in 401(k) Limit 2026.
Sources and notes
The Roth catch-up requirement comes from section 603 of the SECURE 2.0 Act, implemented by final regulations issued by Treasury and the IRS on September 16, 2025. The threshold is FICA wages as defined for Social Security tax purposes, reported in Box 3 of Form W-2, from the employer sponsoring the plan, and is $150,000 for 2026 measured against 2025 wages. Contribution limits for 2026 follow IRS Notice 2025-67. Good faith compliance applies for 2026, with the final regulations applying strictly from 2027.
Plan terms vary considerably, including whether a Roth option exists, whether the enhanced catch-up is offered, and whether wages are aggregated across related entities. The paycheck figures are illustrative and assume 26 pay periods, a single marginal rate, and no other changes. This article is for general educational purposes only and should not be treated as personal tax, retirement, or financial advice.
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