2026 Roth 401(k) Catch-Up Rule: Why High Earners Over $150K Lose the Pre-Tax Catch-Up Option

The 2026 Roth 401(k) catch-up rule applies to participants in workplace 401(k), 403(b), and governmental 457(b) plans who meet two conditions during 2026. First, the participant must be age 50 or older at any point during 2026, which is the age threshold for any catch-up contribution under §414(v) of the Internal Revenue Code. Second, the participant’s prior-year (2025) FICA wages from the same employer sponsoring the plan must exceed $150,000. The $150,000 threshold is set in the statute at §414(v)(7) and indexed for inflation. The IRS published the 2026 threshold of $150,000 in Notice 2024-80 (irs.gov).

The age 50 threshold is met if the participant turns 50 at any point during the calendar year, including December 31. A participant whose 50th birthday is in late December 2026 is treated as age 50 for the entire 2026 calendar year for catch-up purposes. The participant can make catch-up contributions starting in January 2026 even though the actual 50th birthday is many months away. This is the standard treatment under §414(v) and has been the rule since catch-up contributions were added by the Economic Growth and Tax Relief Reconciliation Act of 2001.

The $150,000 wage threshold is measured on a per-employer basis. A participant with two W-2 jobs in 2025, each paying $100,000 in FICA wages, has $0 of FICA wages above the threshold at either employer and is so not subject to the Roth catch-up rule at either employer’s plan in 2026. The rule does not aggregate wages across employers. This is sometimes called the ‘two-job loophole’ because high earners who split their income across multiple W-2 employers can sometimes avoid the rule entirely while still earning more than $150,000 in total income.

Self-employed individuals contributing to a solo 401(k) are subject to the rule based on their FICA-subject self-employment earnings rather than W-2 wages. The rule applies if the self-employed participant’s net earnings from self-employment in 2025 exceeded $150,000. The measurement is the net SE earnings reported on Schedule SE, not the gross business revenue. A sole proprietor with $300,000 of gross revenue but $130,000 of net earnings after expenses is below the threshold and not subject to the rule in 2026. The same calculation applies to single-member LLC owners and partners in partnership solo 401(k) arrangements.

FICA wages mean Social Security wages (W-2 box 3) or Medicare wages (W-2 box 5), whichever is higher. For high earners, box 5 (Medicare wages, uncapped) is typically the higher figure because box 3 is capped at the Social Security wage base ($176,100 for 2025, $184,500 for 2026). Equity compensation that vests during 2025 and is subject to FICA withholding at vest counts toward the threshold. Stock options exercised in 2025 that produce ordinary income at exercise also count. Restricted stock units that vest in 2025 are typically the largest single contributor to FICA wages for tech employees with significant equity compensation.

Certain types of compensation are excluded from FICA and so do not count toward the $150,000 threshold. These include employer-paid health insurance premiums, employee contributions to section 125 cafeteria plans (Section 125 §125 covers pre-tax health, dental, vision, dependent care FSA, and similar benefits), excludable fringe benefits under §132, certain disability insurance premiums paid by the employer, and tax-deferred compensation excluded from FICA under specific code sections. An employee with $145,000 of base salary plus $15,000 of employer-paid health insurance has only $145,000 of FICA wages and is below the threshold. The employer-paid health insurance does not count.

Employees who joined a new employer mid-2025 are evaluated based on the partial-year FICA wages from that employer. The starting point is the date the employee joined the employer. An employee who started on October 1, 2025, and earned $40,000 between October 1 and December 31, 2025, has $40,000 of 2025 FICA wages from that employer and is not subject to the Roth catch-up rule at that employer’s plan in 2026. This creates a temporary window where high earners who change jobs in late 2025 are not subject to the Roth rule at the new employer for the entire 2026 plan year. The first eligible year for the Roth catch-up rule at the new employer would be 2027, based on 2026 wages from the new employer.

Non-employee directors of corporations and certain other non-W-2 workers are not subject to the rule because they do not receive FICA-subject wages. Outside directors who receive director fees on Form 1099 and contribute to their own retirement plans through a self-employment arrangement are evaluated based on their self-employment earnings rather than W-2 wages. The application can be murky in cases where an individual has both W-2 employment with one entity and 1099 director or consulting work with another entity. Each relationship is evaluated separately for the per-employer threshold test.

Federal government employees participating in the Thrift Savings Plan (TSP) are also subject to the 2026 Roth catch-up rule under separate but parallel rules. The TSP has its own administrative implementation of the SECURE 2.0 requirements, and federal employees should consult the TSP website at tsp.gov for the specifics. The federal government’s wage data system feeds the TSP for threshold determination, so the administrative process is somewhat smoother for federal employees than for private-sector employees who depend on their employer’s payroll system to make the determination.

The Reed Corporation works with high-income clients on the 2026 Roth 401(k) catch-up rule analysis during annual tax planning. For clients in the affected wage range, the analysis includes the threshold determination (which is straightforward for most clients), the pre-tax versus Roth math at the client’s specific marginal rate, the interaction with other retirement vehicles (Backdoor Roth IRA, Mega Backdoor Roth 401(k), SEP-IRA from self-employment), and the longer-term tax diversification picture. For most high earners, the loss of the pre-tax catch-up deduction is a modest cost relative to the value of additional Roth diversification, but the specifics depend on the client’s situation. Clients approaching retirement (within 5 to 10 years) face a different analysis than younger high earners with 15 to 25 years of accumulation ahead. The longer accumulation period generally makes Roth treatment more valuable because the tax-free growth compounds over more years. The Reed Corporation team can run the specific numbers for your situation and recommend whether to keep maxing the catch-up at the higher Roth-forced amount or to scale back contributions in favor of other pre-tax vehicles. See our tax strategy consulting page for engagement details.

No, the 2026 Roth 401(k) catch-up rule applies only to the catch-up portion of the contribution, not to the base employee deferral. The base $24,500 employee deferral (the 2026 §402(g) limit) can still be made on a pre-tax basis, a Roth basis, or any combination of the two, at the participant’s election. The Roth requirement under §414(v)(7) is narrowly limited to the additional catch-up amount available to participants age 50 and older.

The catch-up portion for 2026 is $8,000 for participants ages 50 to 59 and ages 64 and older. For participants in the SECURE 2.0 §109 enhanced catch-up window (ages 60, 61, 62, and 63), the catch-up amount is $11,250. The catch-up dollars are tracked separately in the plan from the base deferral dollars. The plan records the base deferral, the catch-up contribution, the employer match, and any other contribution categories in separate accounting buckets. The Roth requirement applies only to the catch-up bucket for affected participants.

Example: a 55-year-old participant earning $250,000 in 2026 W-2 wages, with 2025 FICA wages of $240,000, has $24,500 of base deferral capacity (any combination of pre-tax and Roth) plus $8,000 of catch-up capacity that must be Roth. The participant can elect $24,500 of pre-tax base deferral (which provides a $24,500 federal income tax deduction at the marginal rate) plus $8,000 of Roth catch-up (which provides no current deduction but adds to Roth tax-free growth). The total contribution is $32,500, with $24,500 pre-tax and $8,000 Roth. The pre-tax portion is fully deductible at the participant’s marginal rate.

Alternatively, the same participant can elect $24,500 of Roth base deferral (no current deduction, all Roth treatment) plus the required $8,000 of Roth catch-up. The total contribution is $32,500, all Roth. The participant gives up the $24,500 deduction at the current marginal rate (roughly $9,600 of current tax at 41 percent combined federal plus state marginal rate) but gains Roth treatment for the full contribution. Whether this is the right choice depends on the participant’s broader tax diversification picture and expected retirement marginal rate.

A third option is to split the base deferral between pre-tax and Roth. For example, $16,000 of pre-tax base deferral plus $8,500 of Roth base deferral plus $8,000 of required Roth catch-up equals $32,500 total. This produces a partial current deduction on the $16,000 pre-tax portion plus Roth treatment on the remaining $16,500. The split is useful for participants who want some current deduction but also want to build up Roth diversification. The plan’s enrollment software typically allows the participant to elect the pre-tax versus Roth split for the base deferral and then automatically routes any catch-up amounts to Roth as required by the rule.

Employer matching contributions are separate from both the base deferral and the catch-up. The employer match is calculated based on the participant’s deferral (not the catch-up) and is typically credited to a pre-tax employer match account. SECURE 2.0 §604 added a new option for plans to allow Roth treatment of employer match contributions, but this is at the participant’s election and the participant pays current tax on the matched amount if Roth treatment is elected. The Roth match option is not mandatory under the 2026 rule; it is simply an additional choice that some plans now offer.

The distinction between base deferral and catch-up matters for record-keeping at the plan level because the plan must track them separately for the Roth catch-up rule compliance. The plan recordkeeper assigns a separate accounting code to catch-up contributions and routes them to the Roth subaccount for affected participants. The base deferral can go to either the pre-tax or Roth subaccount based on the participant’s enrollment election. The separate tracking is what allows the plan to comply with the rule without forcing the entire contribution into Roth.

For participants who elected pre-tax base deferral and Roth catch-up, the Form W-2 reporting for 2026 will show the pre-tax base deferral in box 12 with code D (401(k) elective deferral) and the Roth catch-up in box 12 with code AA (Roth 401(k) contribution). The two amounts are reported separately on the W-2 with different codes. Tax software generally handles this automatically when the W-2 is imported. Manual entry of the W-2 must follow the same separate reporting.

Participants who do not exceed the $150,000 FICA wage threshold from a single employer are not subject to any Roth requirement and can make the full $32,500 of base deferral plus catch-up entirely on a pre-tax basis at the participant’s election. The Roth requirement applies only to the affected high-earner group. For lower-paid participants age 50 and older, the catch-up contribution rules are unchanged from prior years.

The Reed Corporation walks high-income clients through the base deferral versus catch-up election during annual tax planning. The recommendation typically depends on the client’s current marginal rate, expected retirement rate, time horizon, and broader tax diversification picture. For most high earners with substantial pre-tax retirement balances already built up, electing some Roth treatment for the base deferral on top of the required Roth catch-up makes sense as a diversification move. For high earners approaching retirement with limited time for Roth growth to compound, keeping the base deferral pre-tax (to capture the current deduction) and accepting the forced Roth catch-up is often the better answer. The specific recommendation depends on the client’s numbers. See our tax strategy consulting page for engagement details on retirement planning analysis.

The 2026 Roth 401(k) catch-up rule is triggered when the participant’s prior-year (2025) FICA wages from the employer sponsoring the plan exceed $150,000. The $150,000 threshold is set by IRC §414(v)(7) and indexed for inflation annually. The IRS published the 2026 threshold of $150,000 in Notice 2024-80, which is available at irs.gov. The 2025 threshold was $145,000 (used to determine 2026 catch-up treatment in the first plan year of the rule). The thresholds are projected to increase to approximately $155,000 for 2027 and $160,000 for 2028, depending on the actual inflation index.

The threshold is measured as FICA wages, not total compensation or W-2 box 1 wages. FICA wages are reported in W-2 box 3 (Social Security wages, capped at the annual Social Security wage base of $176,100 for 2025) or box 5 (Medicare wages, uncapped). For high earners, box 5 is typically the higher figure and is the operative measurement because box 3 is capped at the wage base. The rule uses the higher of the two for the threshold calculation, which is effectively always box 5 for participants in the affected range.

Items that count toward FICA wages and so toward the $150,000 threshold include base salary, hourly wages, overtime pay, commission, performance bonuses paid through payroll, signing bonuses, severance payments (in most cases), and equity compensation subject to FICA at vest (typically restricted stock units, but also can include certain stock options and restricted stock awards depending on the elections made). Equity compensation is often the largest single component for tech employees and finance professionals, sometimes adding $100,000 or more to FICA wages in a single vesting year.

Items that do not count toward FICA wages and so do not count toward the $150,000 threshold include employer-paid health insurance premiums (excluded under §3121(a)(2)(B)), employer contributions to a qualified retirement plan (excluded under §3121(a)(5)), section 125 cafeteria plan elections for pre-tax health, dental, vision, dependent care FSA, and similar benefits (excluded under §3121(a)(5)(G)), excludable fringe benefits under §132 (certain working condition fringes, de minimis fringes, qualified transportation, and others), most employer-paid disability insurance premiums, and certain other excluded compensation categories.

The exclusion of employer-paid health insurance and other pre-tax benefits is significant for high earners who participate in expensive employer-sponsored benefit programs. An employee with $145,000 of taxable wages plus $15,000 of employer-paid health insurance and $8,000 of pre-tax 125 plan benefits has $145,000 of FICA wages (the health insurance and 125 plan amounts are excluded), even though the total compensation package is closer to $168,000. The participant is below the $150,000 threshold for 2026 because the FICA wage component is what counts, not total compensation.

The threshold is measured at the end of the calendar year (December 31, 2025, for the 2026 plan year application). The plan determines whether the participant’s 2025 W-2 box 3 or box 5 wages exceeded $150,000 and uses that determination for all of 2026. Mid-year compensation changes during 2025 do not affect the determination; only the calendar-year total matters. Mid-year compensation changes during 2026 also do not affect the determination for 2026; the rule is based purely on the prior year’s wages. The participant is either subject to the rule for all of 2026 or not subject to the rule for all of 2026, with no mid-year switching.

Employers with multiple controlled-group entities are evaluated under the controlled-group rules of §414(b) and §414(c). If two corporations are members of the same controlled group, wages paid by one corporation are aggregated with wages paid by the other for purposes of the $150,000 threshold. This prevents large multi-entity employers from splitting wages across affiliated entities to avoid the threshold. The controlled-group rules also apply to affiliated service groups under §414(m). The aggregation rules are complex and worth running through with a tax advisor if the participant has wages from multiple related entities.

The threshold for 2026 is the same dollar amount ($150,000) as the threshold used for highly compensated employee (HCE) determination under §414(q) for 2025 plan year discrimination testing. This is not a coincidence; SECURE 2.0 §603 specifically used the HCE threshold concept to define the Roth catch-up affected group. However, the dollar amount is different in some years because the HCE threshold is set as a fixed dollar amount in §414(q) ($150,000 for 2025) while the Roth catch-up threshold is set separately in §414(v)(7) ($150,000 for 2026, used to determine 2026 plan year application based on 2025 wages). The two thresholds may diverge in future years as inflation indexing affects them differently.

Participants who are uncertain whether their 2025 FICA wages exceeded $150,000 should check W-2 box 5 (Medicare wages) when they receive the 2025 W-2 in January 2026. The plan administrator will also typically communicate to affected participants in early 2026 about the change in catch-up contribution treatment. The communication usually comes as a written notice or email explaining that the participant is subject to the Roth catch-up rule for 2026 and that any catch-up contributions will be routed to the Roth subaccount automatically. Participants who believe the determination is wrong (perhaps because of a payroll error or a misclassification of certain compensation) should raise the issue with the plan administrator and HR before the first catch-up contribution of 2026.

The Reed Corporation helps high-income clients confirm their 2025 FICA wage status and project whether they are likely to remain above or below the threshold in future years. For clients with significant equity compensation, the vesting schedule can produce large year-to-year swings in FICA wages, which means a client might be above the threshold in one year and below it in the next. The pre-tax versus Roth election can then be improved year by year based on the actual threshold status. For clients with stable W-2 compensation that is consistently above $150,000, the rule is essentially permanent for catch-up contributions, and the planning question is how to handle the Roth treatment for the long term. See our tax strategy consulting page for engagement details on retirement contribution planning.

If your employer’s 401(k) plan does not offer Roth catch-up contributions, the 2026 Roth 401(k) catch-up rule blocks you from making any catch-up contributions at all. The plan must either add a Roth catch-up feature or shut off catch-up contributions entirely for affected high-earner participants. There is no fallback to pre-tax catch-up. The rule is binary: Roth treatment available, or no catch-up at all. This is the most aggressive part of the rule and the part that has generated the most plan-sponsor scrambling during the 2024 and 2025 implementation period.

Most large employer 401(k) plans already offered Roth deferrals and Roth catch-up options well before the 2026 effective date. Roth 401(k) features have been available since the Economic Growth and Tax Relief Reconciliation Act of 2001 (which created the Roth 401(k) framework), and most major plan recordkeepers (Fidelity, Vanguard, Empower, Schwab, Principal, TIAA) have supported Roth deferrals and Roth catch-up for many years. Plans at large tech companies, financial services firms, consulting firms, and major law firms almost universally support Roth catch-up by default. Plans at smaller employers and at certain professional partnerships are the most likely to lack the Roth feature.

If your plan currently lacks Roth catch-up and you are affected by the 2026 rule, the first step is to ask the HR or benefits team whether the plan is being amended to add Roth catch-up before January 1, 2026. Most plan sponsors have been working on amendments throughout 2024 and 2025 specifically to address this issue. The amendment typically requires a plan document update, a payroll system update to route Roth contributions correctly, and recordkeeper coordination. The cost of the amendment is usually $1,000 to $5,000 in legal and administrative fees plus ongoing payroll administration.

If your plan is not being amended and Roth catch-up will not be available, you have several alternatives. The first is to redirect the catch-up dollars to a traditional or Roth IRA outside the plan. The traditional IRA contribution limit for 2026 is $7,000 ($8,000 with the age-50 catch-up), well below the $8,000 401(k) catch-up amount but better than nothing. The Roth IRA contribution is income-limited under §408A(c)(3), with phase-out at $165,000 to $180,000 single and $246,000 to $256,000 joint for 2026, so most high earners are above the direct Roth IRA contribution phase-out and cannot use that route. The backdoor Roth IRA is the workaround for high earners, which involves a non-deductible traditional IRA contribution followed by a Roth conversion. The backdoor Roth IRA produces $7,000 of Roth contribution capacity ($8,000 with the catch-up) for high earners who would otherwise be shut out of direct Roth IRA contribution.

A second alternative is to use a SEP-IRA or solo 401(k) from self-employment income. If you have any 1099 income from consulting, freelance work, board service, or other self-employment, you can establish a SEP-IRA or solo 401(k) and contribute to it based on your self-employment earnings. The SEP-IRA contribution limit is 25 percent of net SE earnings (capped at the §415(c) limit of $70,000 for 2026), and the contribution is fully deductible against self-employment income. This is the cleanest pre-tax retirement workaround if you have side income. Many high earners with W-2 day jobs also have board service, consulting, or speaking engagements that generate enough 1099 income to support a meaningful SEP-IRA contribution.

A third alternative is to use a Mega Backdoor Roth 401(k) inside the same workplace plan if it offers after-tax contributions and in-service rollovers. The Mega Backdoor Roth allows up to roughly $35,000 to $46,500 of additional after-tax contributions converted to Roth, on top of the standard deferral and catch-up. If your plan offers after-tax contributions but does not specifically offer Roth catch-up, the Mega Backdoor Roth may still be available to provide additional Roth contribution capacity that effectively replaces the lost catch-up contribution. The Mega Backdoor Roth and the catch-up are separate features of the plan, and a plan can offer one without offering the other.

A fourth alternative is to participate in a 457(b) plan if your employer offers one in addition to the 401(k). 457(b) plans are typically available to governmental employees and certain non-profit employees. The 457(b) has its own separate §402(g)-equivalent deferral limit of $24,500 for 2026 plus a catch-up. The 457(b) catch-up is also subject to the Roth requirement under SECURE 2.0, but the underlying §457(b) plan rules and final-three-years special catch-up rule operate differently from the 401(k). Some governmental employees can contribute up to $46,000 of combined 401(k)/457(b) catch-up plus enhanced amounts in the final three years before retirement.

If none of the alternatives above are available and the plan simply will not allow you to make any catch-up contribution at all in 2026, your retirement contribution capacity is reduced by $8,000 (or $11,250 in the enhanced catch-up window) for that year. The current tax cost of losing the catch-up is the difference between the marginal tax rate on the lost deduction and the tax-free Roth growth that would otherwise have accrued. At a 41 percent combined marginal rate, losing the $8,000 deduction costs $3,280 of current tax. Over a 15-year horizon, losing the $8,000 of Roth growth at a 7 percent return costs roughly $22,071 of foregone tax-free retirement wealth. The combined cost of the missing catch-up is meaningful but not catastrophic.

Plans that are unable to add Roth catch-up before January 1, 2026, and that have affected participants are exposed to plan qualification consequences under IRS rules. The plan could be disqualified for operational failure to comply with the SECURE 2.0 requirements. In practice, the IRS rarely disqualifies plans and instead works through the Employee Plans Compliance Resolution System (EPCRS) to correct operational failures retroactively. Plans that catch the issue early and self-correct through the Voluntary Correction Program (VCP) typically avoid major penalties. The cost of correction is the labor and recordkeeping effort to reallocate misallocated contributions, plus any user fees for IRS submissions.

The Reed Corporation works with high-income clients whose employer plans do not support Roth catch-up to design alternative retirement contribution strategies. For most clients, the combination of backdoor Roth IRA contributions, SEP-IRA contributions from self-employment income, and Mega Backdoor Roth contributions (where available) is sufficient to replace the lost catch-up capacity. For clients whose W-2 employer plan is the only retirement vehicle and whose plan does not support Roth catch-up, the loss of the catch-up is a real but limited cost. The bigger picture is to make sure the client is using every available retirement contribution channel to make the most of tax-advantaged savings. See our tax strategy consulting page for engagement details.

The 2026 Roth 401(k) catch-up rule is fundamentally a timing shift rather than a pure tax increase, but the practical effect for any individual participant depends on the marginal rate now versus the expected marginal rate at retirement. The rule moves tax from the future (when the participant would have withdrawn the pre-tax catch-up as taxable income in retirement) to the present (when the participant pays tax on the Roth catch-up contribution as part of current-year wages). The total tax paid over the participant’s lifetime depends on the marginal rates in each period.

From the federal government’s perspective, the rule produces revenue immediately. The Joint Committee on Taxation scored SECURE 2.0 §603 at roughly $11 billion of additional federal revenue over the 10-year budget window. The revenue comes from accelerating taxation of catch-up contributions from the future (when they would have been taxed at withdrawal) to the present (when they are taxed as current wages). The government collects $11 billion sooner; the present value of that revenue is meaningfully higher than the present value of the deferred revenue under the pre-existing rule. This is the budget logic that drove the policy change.

From the individual participant’s perspective, the question is whether the current marginal rate is higher than the expected future marginal rate. If current rate is higher, the participant loses from being forced into Roth treatment because the deduction at the current high rate would have been worth more than the eventual Roth tax savings at the lower retirement rate. If retirement rate is higher, the participant gains from being forced into Roth treatment because the tax avoided at the higher future rate exceeds the deduction lost at the lower current rate.

Most high earners affected by the 2026 rule have a current combined federal plus state marginal rate of 35 to 45 percent (depending on state of residence and total income level). Federal alone is typically 32 to 37 percent for incomes in the $150,000 to $500,000 range. State adds 0 to 13 percent depending on the state. Retirement rates for most high earners are typically lower than working-years rates because retirement income (Social Security, pensions, retirement plan withdrawals) is usually less than peak earning years and the participant may have relocated to a lower-tax state. A working rate of 41 percent dropping to a retirement rate of 28 percent makes pre-tax treatment more valuable than Roth (the 13-point rate drop favors deferring the tax).

However, the Roth treatment has additional benefits beyond the pure rate arbitrage. Roth dollars do not count toward Modified Adjusted Gross Income (MAGI) for Medicare IRMAA threshold determination, do not trigger Social Security benefit taxation, do not count toward the net investment income tax (NIIT) under §1411, and provide complete tax-free withdrawal flexibility in retirement. These secondary benefits add meaningful value beyond the rate arbitrage and can tip the analysis in favor of Roth even when the rate comparison is roughly neutral.

The Medicare IRMAA tier impact is particularly significant for high-income retirees. A retiree with $250,000 of taxable income from pre-tax retirement withdrawals plus Social Security falls into the second-highest IRMAA tier, paying an additional $4,200 per year in Medicare Part B and D premiums (2026 IRMAA brackets). The same retiree with $200,000 of taxable income plus $50,000 of Roth withdrawals falls into the third-highest IRMAA tier, paying about $2,800 less in IRMAA premiums per year. Over a 20-year retirement, the IRMAA savings from Roth withdrawal substitution can total $25,000 to $50,000.

The Social Security taxation interaction is another secondary benefit. Up to 85 percent of Social Security benefits become taxable when modified adjusted gross income (which excludes Roth distributions but includes pre-tax retirement withdrawals) exceeds certain thresholds. Roth withdrawals do not count toward the MAGI calculation, so substituting Roth dollars for pre-tax dollars can reduce or eliminate the Social Security taxation. For a retiree receiving $40,000 of Social Security and otherwise above the threshold, this can save $5,000 to $8,000 per year in federal tax on Social Security benefits.

The net investment income tax (NIIT) interaction is similar. The NIIT is a 3.8 percent surtax on net investment income for high-income taxpayers (§1411). Pre-tax retirement withdrawals do not directly trigger the NIIT but do count toward the threshold determination for whether the NIIT applies to other investment income. Roth withdrawals do not count toward the threshold and so do not push the participant into NIIT territory. For a retiree with significant taxable investment income (interest, dividends, capital gains), substituting Roth dollars for pre-tax dollars can save the 3.8 percent NIIT on the investment income that would otherwise be exposed.

The total picture is that the 2026 Roth 401(k) catch-up rule is more than a pure timing shift because of these secondary benefits of Roth treatment. For most high earners, the Roth catch-up is roughly tax-neutral over the long term on the pure rate arbitrage but mildly tax-advantaged when the secondary IRMAA, Social Security, and NIIT benefits are factored in. The specific math depends on the participant’s situation, but the typical result is a modest net positive from the Roth treatment over a 15- to 20-year retirement horizon. Younger participants with longer accumulation horizons see larger benefits from the tax-free Roth growth compounding over more years.

The Reed Corporation runs the specific pre-tax versus Roth analysis for high-income clients during annual tax planning, considering the client’s current marginal rate, expected retirement marginal rate, time horizon, expected retirement income mix, Medicare IRMAA tier projections, Social Security taxation exposure, and broader tax diversification picture. For most high earners affected by the 2026 rule, the loss of the pre-tax catch-up deduction is a modest current cost that is roughly offset (and often more than offset) by the long-term Roth benefits. The bigger strategic question for most clients is not whether the Roth catch-up is good or bad, but how to improve the full retirement contribution picture across all available vehicles (401(k), backdoor Roth IRA, mega backdoor Roth, SEP-IRA, HSA, taxable brokerage) to make the most of after-tax retirement wealth. The catch-up is one piece of a larger puzzle. See our tax strategy consulting page for engagement details.