Consider New Roth 401k Options
Why you should review your 401(k) contributions
An overlooked provision under the Secure 2.0 Act involves the changes to 401(k) catch-up contributions for plan participants age 50 and over (but it can benefit everyone).
First, the Act added new higher catch-up contributions starting in 2025. The catch-up contribution for employees age 50 and over is $8,000/year for 2026 but a new super catch-up contribution of $11,250 is available for employees ages 60-63.
In addition, the SECURE 2.0 Act’s high earner rule requires, starting in 2026 (delayed from the previous deadline), that catch-up contributions for earners whose wages exceed $150,000 in the previous tax year, must be designated as Roth after-tax contributions. Note that if your elective Roth deferrals during the year exceed the catch-up amount at the time you exceed the limit for the statutory standard contribution limit, you will not be required to make the catch-up contribution as a Roth contribution (but you still can if you choose).
If your employer’s plan does not offer a Roth contribution feature and you fall under the high-earner rule, you won’t be able to make catch-up contributions at all to that plan.
In anticipation of the earlier required deadline of 2024 most plans for large employers have already added a Roth 401(k) option. Fidelity estimates that over 96.5% of plans now offer a Roth 401(k) option.
What’s a Roth 401(k)?
A Roth 401(k) is a kind of hybrid between a Roth IRA and a 401(k), with rules from each kind of plan. Similar to a Roth IRA, an employee makes post-tax contributions, and any earnings grow tax-deferred (and likely tax-free). Like a Roth IRA, withdrawals from a Roth 401(k) are not taxed if they are taken after the owner has reached age 59 ½ and the contribution to the Roth instrument was made at least five years earlier (note that is a requirement that is specific to Roth accounts).
The contributions for Roth 401(k) accounts are made through regular payroll deductions and have the same limits as a tax-deferred 401(k), which are considerably higher than the limits for IRAs.
No RMDs
As of 2024, RMDs are no longer required for Roth 401(k)s. Previously the no-RMD rule only applied to Roth IRAs.
High contribution limits with no income restrictions
Just like traditional 401(k)s, high earners are not restricted from contributing to Roth 401(k)s. This differs from Roth IRAs, which have contribution limitations based on modified adjusted gross income (MAGI).
In 2026, you can contribute up to $24,500 pre-tax or Roth to your 401(k). If you’re at least age 50 at the end of the calendar year, you can add a pre-tax or Roth catch-up contribution of $8,000 (or $11,250 if age 60–63, if your plan allows). Some plans may allow after-tax contributions up to the combined employee and employer limit of $72,000.
Reasons to move to 100% Roth contributions
We have had significantly fewer tax brackets in the U.S. since the late 80s. Currently there are 7 brackets, with the highest rate being 37%. With the current deficit spending and massive national debt there is a high likelihood that individual rates may rise in the future. If you can afford to do without the tax deferral now you may want to consider Roth contributions to avoid potentially higher rates in the future.
Another reason to consider Roth contributions now is that many high earners have already saved tax deferred amounts from employee and employer contributions that will cause them to be at their current tax bracket (or higher) when they are required to take RMDs. By switching to Roth contributions now you can avoid exacerbating that issue and lower the total RMDs you will be required to take in the future.
Planning for rising income or you are semi-retired
Even if you aren’t a high earner, you might consider electing Roth contributions if you expect to make a higher salary in the future (or you were a high earner in the past). For people just starting out, a smaller Roth contribution versus a larger deductible one could ultimately be more valuable to you. At a 22% tax rate, a deductible deferral of $1,000 saves you $220 in taxes. If you instead make a smaller Roth contribution of $780 you would essentially be in the same after-tax position but will have haircut your savings by only 22% now and essentially locked in that tax rate permanently for the contributed funds and a rate of zero for the growth. A deductible 401(k) contribution benefits from the 22% rate but earnings will be fully taxable. Just make sure you contribute enough to get any matching contribution you are eligible for!
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