For workers ages 50 and older, catch-up contributions to an employer-sponsored retirement plan have been a powerful tool to boost their savings and reduce their taxable income during peak earning years.
The 50+ advantage
2026 contribution limits for 401(k), 403(b), and 457(b) accounts.
Starting this year, however, those whose FICA wages1 surpassed $150,000 in 2025 must use after-tax dollars to make catch-ups to workplace retirement accounts, eliminating the tax-deferred option for such savings.
"If your FICA income exceeds the limit2 by even one dollar, your entire catch-up contribution must go into a Roth account," says Hayden Adams, CPA, CFP®, director of tax planning and wealth management research at the Schwab Center for Financial Research.
While those affected will lose the immediate tax break, they will gain the advantages of a Roth account—namely, tax-free qualified distributions at the federal level. "Adding such funds to your portfolio gives you greater tax flexibility," Hayden says.
That said, not all employer-sponsored plans offer a Roth option, which may prevent some high earners from contributing catch-ups altogether.
If you fall into this camp and want to make up for the loss, you have a few options to consider depending on your goals and situation:
- For more Roth savings: If your modified adjusted gross income is less than $153,000 ($242,000 for couples filing jointly) in 2026 and you are 50 or older, you could contribute up to $8,600 (including a $1,100 catch-up contribution) to a Roth IRA.
- For more tax-deferred savings: If you're enrolled in a high-deductible health plan that offers a health savings account (HSA), you could max out your annual contributions, which can help offset some of the tax hit (up to $4,400 for individuals and $8,750 for families in 2026, with an additional $1,000 catch-up contribution allowed for those ages 55 and older). HSA funds may be used tax- and penalty-free only for qualified medical expenses; however, after age 65, withdrawals can be made for any reason without penalty, and nonqualified distributions are taxed as ordinary income.
If neither account is available to you, or you have additional funds to invest, you may wish to save in a taxable brokerage account. You can access those funds at any time, and the account is not subject to the required minimum distributions (RMDs) from tax-deferred retirement accounts mandated by the IRS beginning at age 73 or 75, depending on your birth year.
"No matter the method you choose, saving more is always worthwhile," Hayden says.
1FICA (Federal Insurance Contributions Act) wages comprise your pretax earnings before contributions to tax-deferred retirement accounts, excluding earnings used for health care premiums and HSA contributions.
2The annual FICA limit is indexed to inflation.
Discover more from Onward
Keep reading the latest issue online or view the print edition.
More from Charles Schwab
Explore more topics
This material is intended for general informational and educational purposes only. The investment strategies mentioned are not suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.
All expressions of opinion are subject to change without notice in reaction to shifting market, economic, or political conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.
Investing involves risk, including loss of principal.
An employee is subject to the Roth catch-up requirement if the employee's FICA wages for the previous calendar year are more than the current year's 414(v)(7) threshold.
Withdrawals and distributions of taxable amounts from Roth accounts are subject to ordinary income tax and, if made prior to age 59½, may be subject to an additional 10% federal income tax penalty, sometimes referred to as an additional income tax.
For a Roth IRA, once you reach age 59½ tax-free withdrawals of earnings are permitted five years after the first contribution creating a Roth account. Earnings withdrawn prior to that may be subject to ordinary income taxes and a 10% federal tax penalty.
Earnings on Roth 401(k) contributions are eligible for tax-free treatment as long as the distribution occurs at least five years after the year you made your first Roth 401(k) contribution and you have reached age 59½, have become disabled, or have died.
This information is not a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager, Estate Attorney) to help answer questions about specific situations or needs prior to taking any action based upon this information.
The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.