Why You Need to Rethink Your 401(k) Catch-Up Contributions This Year

Starting in 2026, if you make over $145,000 in FICA wages, your catch-up contributions (the extra $7,500 you can put in your 401(k) once you hit 50) have to go into a Roth account instead of traditional pre-tax.

A lot of people are upset about this change. They want the tax deduction now.

But for most high earners, this change is actually fixing a problem they don't realize they have.

You're Probably More Overweight in Traditional Accounts Than You Think

Look at your total retirement picture. If you're making $150,000 or more, there's a good chance that a significant portion of your retirement money is sitting in pre-tax accounts.

How did that happen? Many of us started maxing out our 401(k)s back in the 1990s and early 2000s - before Roth 401(k)s were even an option. Then every time we changed jobs, we rolled those balances into traditional IRAs. Year after year, the pre-tax pile got bigger.

Fast forward to retirement. Every dollar you pull out of those accounts is fully taxable as ordinary income. You didn't build a retirement account - you built a partnership with the IRS where they get to collect later.

Tax Problems Compound in Ways That Aren't Obvious

Consider this example: You retire at 65 with $2 million in your traditional IRA. You're pulling out $80,000 a year to live on. Life is good.

Then you hit 73 and Required Minimum Distributions kick in. That $2 million IRA? You're now required to take out approximately $88,000 in year one. And it goes up from there.

This is where it gets ugly:

That RMD counts as income, which means up to 85% of your Social Security becomes taxable. Every $1,000 you're forced to withdraw creates about $1,850 in taxable income once you factor in the Social Security taxation.

You thought you were in the 22% tax bracket. But your effective tax rate on that withdrawal is over 40%. You're paying taxes you never saw coming on money you don't even need to spend.

The Forced Roth Catch-Up Is Solving a Problem You Didn't Know You Had

Yes, you lose the $7,500 tax deduction each year. That stings.

But if you're sitting on a massive traditional 401(k) balance with almost nothing in Roth accounts, getting $7,500-$8,000 a year into tax-free money starting at age 50 is exactly what you should be doing anyway.

Do the math: If you're 52 and you keep this up for 21 years until RMDs start, that's roughly $160,000 in contributions growing tax-free. At a modest 6% growth rate, that's $300,000+ that never creates taxable income or pushes up your Social Security taxes.

The government just made you do what a good financial planner would have recommended in the first place.

The Bigger Opportunity Most People Miss

The real planning opportunity isn't the catch-up contribution. It's those gap years between when you retire and when RMDs start at 73.

Say you retire at 65. You've got 8 years before the IRS forces distributions. Those are golden years for strategic Roth conversions - moving money from traditional to Roth accounts while you're in lower tax brackets.

You control the timing. You control the amount. You fill up the 12% bracket, maybe some of the 22% bracket, and you permanently move that money out of the IRS's reach.

But that strategy works better when you're not converting 100% of your retirement money. You need some Roth balance already there. Which is exactly what the catch-up contributions are building.

Bottom Line

If you're 50+ and making good money, the forced Roth catch-up isn't a tax increase. It's the IRS making you do what you should have been doing all along - balancing out an account structure that's too heavily weighted toward pre-tax money.

The math on strategic conversions and Roth contributions is specific to your situation - your income, your current balances, when you plan to retire, and what your tax picture looks like.

Ready to Explore Your Options?

At Daner Wealth Management, we believe your retirement tax strategy should be as intentional as your investment strategy. As a fee-only fiduciary firm, our focus is on helping you navigate the gap years, optimize Roth conversions, and build a tax-efficient retirement income plan that works for your timeline.

We don't just look at your 401(k) in isolation. We look at how your traditional and Roth balances work together, how RMDs will impact your Social Security taxation, and how to position your accounts to minimize lifetime taxes. Retirement planning is about the freedom to live your life without the constant worry of an inefficient tax structure eating away at what you've built.

If you're ready to explore a tailored strategy for your unique situation, Daner Wealth is here to help you navigate that journey. Schedule a call, email or contact our office directly. 

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Disclaimer: This article is for educational purposes only and does not constitute investment or tax advice. The hypothetical examples do not represent actual client results. Tax laws are complex and subject to change. Consult with a qualified tax professional and financial advisor before making any decisions. All investing involves risk. Marc Daner is a registered investment advisor.