The New Roth Catch-Up Rule: Earning $150K+? Your 401(k) Just Changed

If you're over 50 and earned more than $150,000 last year, a SECURE 2.0 rule that took effect this January changed your 401(k): your catch-up contributions must now go into the Roth side - after tax, no deduction. Most high earners are discovering this through a slightly lighter paycheck and assuming it's a payroll error. It isn't.

In this episode, Hazel Secco, CFP®, CDFA® breaks down exactly who the rule catches (it's your wages from one employer, not household income), what it really costs (~$2,800/year at a 35% marginal rate), and why - for women with large pre-tax balances facing future RMDs and Medicare IRMAA surcharges - this "tax hike" may be the forced tax diversification your plan was missing. Plus the three moves to make before December: check your W-2 Box 3 and your plan election, reframe what your Roth dollars are for, and fold it into a mid-year tax plan.

2026 figures referenced: $24,500 employee deferral limit; $8,000 catch-up (50+); $11,250 catch-up (ages 60–63); $150,000 prior-year wage threshold for mandatory Roth catch-ups.

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About Hazel Secco, CFP®, CDFA® 

Hazel is the founder of Align Financial Solutions. As a fee-only, fiduciary advisor, she specializes in helping independent women navigate career transitions, equity compensation, and building toward a Work Optional life.

Disclaimer: All content in this podcast is for educational and informational purposes only and does not constitute individual investment, legal, or tax advice. Investing involves risk. Always consult with a qualified professional regarding your specific situation.

Transcript

The Roth Catch-Up Surprise

SPEAKER_00 0:00

Hey, welcome back to Align Your Retirement. I'm Hazel Secko, CFP and CDFA, founder of Align Financial Solutions, a fee only fiduciary financial planning firm for executive women. Today's episode is about a rule change that took effect this January, one that quietly took a tax deduction away from millions of high earners over 50. And why, if you plan around it instead of just reacting to it, it might be one of the better things that's happened to your retirement tax picture. Let's get into it. Imagine you've done everything right. You turned 50, you turned on catch up contributions like every article told you to, and every extra dollar went into your 401k pre-tax, a deduction right off the top in your highest earning years. That was the

What Changed January 1: The $150K Rule

SPEAKER_00 0:44

deal. This January, the deal changed. If your wages last year were over $150,000, your catch up contributions now have to go into the Roth side of your 401k after tax. No deduction. It's not optional, it's not a glitch in your paycheck, and it's not your payroll department making a mistake. It's federal law, a piece of secure 2.0 that finally kicked in this year, and it lands almost exactly on the women I work with over 50, peak earning years, retirement close enough to see. Here's what I want you to hear before the frustration sets in. The headlines are calling this a tax hike on high earners. I think that's the least interesting thing about it. Because for a lot of women in their 50s, sitting on large pre-tax balances, staring down future required withdrawals and Medicare surcharges, being pushed into Roth right now, maybe the nudge toward tax diversification they were never going to make on their own. Today, exactly who this rule catches and what it really costs, and the three moves to make before December. One quick note before we start every client scenario you'll hear today is a hypothetical composite, real situations, identifying details changed, figures illustrative, and nothing here is personalized advice. Roth versus pretext genuinely depends on your numbers. Let's get

2026 Limits: $24,500 + $8,000 Catch-Up ($11,250 at 60–63)

SPEAKER_00 2:07

into it. I call this the Roth catch up surprise because that's how it's arriving as a surprise, buried in paycheck fine print. Here's the rule plainly. Since 2001, anyone 50 or older has been allowed to put extra money into their 401k above the normal limit, the catch-up contribution. For 2026, the normal employee limit is $24,500 and the catch up is another $8,000 on top. And if you're 60 to 63, there's an even bigger catch-up, $11,250 thanks to a separate secure 2.0 chain. What changed on January 1st is which side of the 401k those catch up dollars can land on. If your social security wages from your employer last year, 2025, were over $150,000, your catch up contributions must now be Roth after tax. The base $24,500, still your choice, pre-tax or Roth. It's only the catch up layer that flipped.

Three Details: Your Employer, Job Changes, No-Roth Plans

SPEAKER_00 3:11

Three details that matter. First, the test is wages from that specific employer, not household income, not investment income, not your joint tax return. Second, if you change jobs, you get a reset. No prior year wages with a new employer means the rule doesn't apply to you there yet. Third, and this is the one almost nobody flags if your employer's plan doesn't offer a Roth option at all, you don't get to keep making pre-tax catch ups. You lose the catch up entirely until they add one. That's worth an email to HR

The Real Cost: ~$2,800/Year at 35%

SPEAKER_00 3:45

this week. So what does it actually cost? Take the $8,000 catch up at a 35% marginal rate pre-tax. That contribution used to knock about $2,800 off your federal bill. Now you pay the tax off front. That's the real honest cost of this rule: roughly $2,800 a year at 35%. More at 37, less at 32 on the catch up layer only. Now, that number is what it cost you this year. What almost no one is talking about is what those same dollars are worth later. That's where this stops being a penalty

Move 1: Check Your W-2 Box 3 and Your Election

SPEAKER_00 4:22

story. Move one. Figure out if the rule actually catches you and put a number on it. 10 minutes. Step one, pull your 2025 W-2 and look at box three. Social Security wages. Is it over $150,000? The rule applies to you at that employer in 2026. At or under, you keep the pretext choice. Nothing changes for you this year, though the threshold gets retested every year. Step two, check your plan portal. Some employers now automatically route your catch up dollars into Roth for you. The rules allow what's called a deemed Roth election. Others just stop your catch up when you hit the base limit and wait for you to opt in. If you're in the second group and you don't act, you could quietly leave the entire $8,000 uncontributed this year. Look at your election right now. Is your catch up set to Roth or set to nothing? Step three, size the tax change. Multiply your catch up amount by your marginal rate. That's a deduction you're not getting anymore. If you're maxing the full $8,000 at 35%, plan for roughly $2,800 more in federal tax than last year, all else equal. It's July. There's time to adjust your withholding or estimates so this doesn't become an April surprise stacked on top of everything else.

Example: The February Paycheck Surprise

SPEAKER_00 5:43

Here's a hypothetical composite. A 58-year-old senior director at a pharmaceutical company wages around $320,000 portfolio, about $2.4 million, planning to step away at $65. Her payroll flipped her catch up to Roth in January. She found out when her February paycheck came in slightly lighter and assumed it was a benefits error. It wasn't an error. 10 minutes with her elections and a mid-year withholding tweak, the surprise was fully handled by March. The rule cost her about $2,800 in current year tax. What she almost missed is what we cover in move two. Because here's the question the headlines never ask. Was that pre-tax deduction actually doing your future self any favors? Quick note before we keep going. This rule is one piece of a much bigger picture. And I put that whole picture into a free guide, the executive women's tax playbook. Seven moves to make before retirement, the conversion window, the widow's penalty, the stealth taxes like Irma, that this catch up change feeds right into. If today caught your attention, that's where it all connects. Links below, and I'll be there when

Move 2: The Reframe — Forced Tax Diversification

SPEAKER_00 6:54

you finish. Move two is the reframe, and it's the heart of this episode. Most women I meet in their 50s have retirement savings that are overwhelmingly pre-taxed. Decades of doing the responsible thing, maxing the 401k, taking the deduction, built a seven-figure balance that has a silent business partner, the IRS. Every dollar that comes out in retirement is taxed as ordinary income. And at 73 or 75, required minimum distributions start pulling money out, whether you need it or not, pushing up your taxable income, your Medicare premiums through Irma, and the tax on your Social Security. That's the picture this rule interrupts.

Why Roth Wins Later: RMDs, IRMAA, Heirs

SPEAKER_00 7:35

Roth dollars behave completely different in retirement. Qualified withdrawals are tax free. Roth 401k balances have no required distributions. Roth withdrawals don't inflate the income number that Medicare uses to set your premiums. And if the money passes to your kids, they inherited income tax-free instead of inheriting your tax bill. So, yes, the government took away a $2,800 deduction, but it may have handed you something your plan was missing. A forced, automatic, every paycheck billed towards tax diversification. Three buckets, pre-tax, Roth, taxable instead of one giant pre-tax bucket. That's what gives you choices about your tax bill and retirement instead of a schedule someone else wrote. And notice the timing question hiding underneath is paying 35% today actually worse than what you'd pay later? Sometimes, honestly, yes. And if you retire early, the conversion window we covered in the last episode may let you move money at lower rates than your paycheck ever could. But if you're looking at large RDs, ArmaCliffs, for married couples, the possibility of one spouse eventually filing single at compressed bucket later is often not the bargain, it looks like. This is exactly why lifetime tax planning beats one year tax thinking.

Example: Flattening a Future RMD Spike

SPEAKER_00 8:59

Composite example, a 61-year-old technology executive, about $2.8 million saved, roughly 90% of it pre-tax, retiring at 67. Her projection showed RMDs in her late 70s large enough to push her two Urma tiers up. For her, the mandatory Roth ketchup at her age, the bigger $11,250 super ketchup, plus a series of planned conversion years after retirement, meaningfully flattened that future income spike. The rule she was annoyed about in January became the first break in the strategy. So the rule is live, you know if you're caught and you know what Roth dollars are actually

Move 3: Your Mid-Year Plan Before December

SPEAKER_00 9:41

for. Move three is what to do about it before December because two of these levers close at year end. And if you're sitting there wondering what this looks like for your bucket specifically, that's the kind of thing I do on a short call. Links below whenever you want it. Now let's keep going. Move three, fold this into an actual mid-year plan. First, you're also losing a deduction you had last year. So if you have RSUs or a bonus stacked on top, your withholding can fall short. Second, this mandatory Roth ketchup while you're still working is the same tax diversification strategy as a Roth conversion window we covered last episode, just at a different life stage. If retirement is inside 10 years, plan them together on one timeline, not one December

Recap + Next Episode: Mid-Year Tax Checkup

SPEAKER_00 10:26

at a time. So let me pull it together. The Roth ketchup surprise is real. If your wages were over $150,000 last year, your 401k ketchup is Roth now. Before you go, if you're over 50 and earning above that threshold, take the 10 minutes this week, check your W-2, check your election, keep the contributions flowing. And if you want the full framework in writing, the catch up rules, the Roth decision, the conversion windows, the Medicare cliffs, it's all in my free guide, the Executive Women's Retirement Tax Playbook. The link is in the show notes. That's step one, and it costs nothing. If you want me to look at your actual situation, how much of your savings is pre-taxed, what your future RMDs look like, whether this rule helps or hurts your specific plan, the link to book a call is right there too. One conversation, no pressure, no product sales. I'm a fee-only fiduciary. Whether we work together or not, you'll walk away with clarity on your best next step. Next week, your July financial checkup. Most executives look at their taxes once a year in the spring when everything is already locked in. July is when a projection can still change the outcome. Withholding, estimated taxes, capital gains, charitable timing, conversion decisions. I'll walk you through the exact mid year checklist I run. If you've ever been surprised in April, don't miss it. If this episode resonated, follow the show and share it with women who turned on catch up contributions this year. I'm Hazel Secko, CFP, and CDFA. Talk to you next time.