Key Topics Covered

The Big Change

• Starting January 1, 2026, workers earning over $145,000 must make catch-up contributions to Roth 401(k) accounts only
• No more pre-tax catch-up contributions for high earners
• This applies to anyone 50+ who earned more than $145,000 from their employer in the previous year

Understanding Catch-Up Contributions

• Standard 401(k) contribution limit in 2025: $23,500
• Catch-up contributions for age 50+: Additional $7,500
• Enhanced catch-up for ages 60-63: Additional $11,250
• These limits will continue to increase with inflation

Traditional vs. Roth 401(k) Explained

• Traditional 401(k): Pre-tax contributions, immediate tax break, taxed upon withdrawal in retirement
• Roth 401(k): After-tax contributions, no immediate tax break, tax-free withdrawals in retirement
• The key difference: timing of when you pay taxes

Impact on Your Paycheck

• Real dollar example: $7,500 catch-up contribution at 30% tax bracket
  • Traditional 401(k): Take-home pay decreases by ~$5,250 (with $2,250 tax savings)
  • Roth 401(k): Take-home pay decreases by full $7,500 (no immediate tax savings)
• Monthly impact: Approximately $625 less per month in take-home pay

Who's Affected?

• High earners: Anyone over 50 earning $145,000+ per employer
• Income threshold is per employer, not combined if working multiple jobs
• Threshold will adjust for inflation in future years
• Millions of American workers will be impacted

Good News for Earners under $145,000

• Workers earning $145,000 or less: Nothing changes
• Full flexibility to choose between traditional and Roth contributions
• Still get immediate tax deduction with traditional contributions
• Complete control over retirement savings strategy

Special Section: Entrepreneurs & Small Business Owners

• Solo 401(k) options available for self-employed individuals
• Same 2026 Roth catch-up rule applies if earning over $145,000 in W-2 wages
• SEP IRA option: Up to $70,000 contribution limit in 2025
• SIMPLE IRA for businesses with employees

The Silver Lining

• Enhanced catch-up limits for ages 60-63 (up to $11,250 in 2025)
• Roth accounts provide tax-free retirement income
• No required minimum distributions during lifetime for Roth accounts
• Tax-free inheritance for heirs

Key Numbers to Remember

• $145,000 - Income threshold for mandatory Roth catch-up contributions
• $23,500 - Standard 401(k) contribution limit (2025)
• $7,500 - Catch-up contribution limit for age 50+ (2025)
• $11,250 - Enhanced catch-up limit for ages 60-63 (2025)
• $70,000 - SEP IRA contribution limit (2025)
• $5,000 - Maximum annual startup cost tax credit for small businesses (3 years)
• $1,000 - Maximum employer match tax credit per employee

Disclaimer

This podcast is for informational and educational purposes only. The host is not a licensed financial advisor, CPA, tax professional, or attorney. All content is based on publicly available information and should not be considered personalized financial, investment, tax, or legal advice.

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