The $150,000 “Curveball” Coming For Your 401(K)

Every year brings new tax rules, and 2026 is no exception.

In fact, there’s one CURVEBALL most pre-retirees are unaware of.

Under the SECURE 2.0 Act, if you earn more than a certain amount, you can NO LONGER make catch-up contributions on a pre-tax basis. (This restriction applies to employer-sponsored retirement plans.)

Instead, they must be made as Roth (after-tax) contributions.

Initially, this may sound like just another tax change.

But…

For many pre-retirees in the “Red Zone” (the 10 years before and after retirement), this can quietly reshape your CURRENT PAYCHECK and long-term retirement strategy. 

How?

Since you can no longer deduct these catch-up contributions (assuming your income is over the threshold), your take-home pay might be lower today. The flip side is that you’re now able to build a tax-free “Roth bucket” for the future.

Ultimately, this changes how you manage your taxes (paying the IRS now to protect yourself later) and how you manage your retirement income withdrawals. 

WHAT TO KNOW

For 2026, the Roth catch-up rule applies if your prior-year FICA wages from the employer sponsoring the plan exceed $150,000 (indexed).

Does this impact you? 

If your 2025 W-2 (specifically Box 3) shows more than $150,000, any catch-up dollars you put into your 401(k) or 403(b) in 2026 will not lower your taxable income for that year. Also, they must be made as Roth contributions instead.

Why Box 3 and not your gross income?

In simple terms, Box 3 on your W-2 is the specific amount of your pay the government “counts” for Social Security taxes. The IRS uses this figure, rather than your total gross income, to determine if you hit the $150,000 threshold.

Key Differences to Know:

• Retirement contributions don’t lower it: If you put $10,000 into a traditional 401(k), that $10,000 is removed from Box 1 (so you don’t pay income tax on it now). However, it stays in Box 3. The government wants their Social Security tax now, even if you’re deferring income tax until later.

• Health insurance sometimes lowers it: If you pay for medical, dental or vision insurance through your employer (pre-tax), these costs are often subtracted from both Box 1 and Box 3. This is one of the few deductions that can actually help keep your “official” income below the threshold.

The “All or Nothing” Trap for Employers

Catch-up contributions no longer depend solely on employee choice. 

For workers above the $150,000 threshold, catch-ups must be Roth. 

This means access depends on whether the employer’s plan offers a Roth option at all. When it doesn’t, higher earners lose the ability to make catch-up contributions with their employer plan.

Impact on the “Super Catch-Up”

SECURE 2.0 also introduced a “Super Catch-Up” for people aged 60–63. 

In 2026, these individuals can contribute up to $11,250. 

Keep in mind, this higher amount is also subject to the $150,000 rule. If you’re over the limit, your entire “Super Catch-Up” must be Roth.

Again, these restrictions apply to employer-sponsored plans only.

[Resource] For a full breakdown of the 2025 and 2026 contribution limits for 401(k)s, IRAs and SIMPLE plans, see Schwab’s Guide to Catch-Up Contributions.

Does this impact the backdoor Roth?

No, the $150,000 limit does not change the rules for a backdoor Roth IRA (a non-deductible traditional IRA contribution followed by a Roth IRA conversion), but it does force a similar outcome.

Think of it as two different doors leading to the same Roth room:

• The $150,000 limit applies only to workplace plans (401(k), 403(b), government 457(b)) and is based on FICA wages (Box 3 of your W-2).
• The backdoor Roth applies only to individual IRAs and is based on your MAGI (Modified Adjusted Gross Income). 

Even if you’re over the $150,000 threshold and required to use Roth catch-ups at work, you can still use a backdoor Roth IRA.

[RELATED] Used strategically, a Roth conversion can give you more spending flexibility in retirement. Use our Roth Conversion Flowchart to determine if a Roth conversion is the right move for you.

Turning the Paradox into a Strategy

Usually, the government limits high earners from contributing directly to Roth IRA accounts.

Paradoxically, for workplace retirement plans, the IRS is now requiring certain catch-up contributions to be made as Roth.

While this disrupts your ability to defer taxes today, it creates an opportunity for tax diversification. 

Most high earners have too much tax-deferred money (traditional 401(k)s) and not enough tax-free money (Roth accounts).

This shift can help rebalance your tax buckets, giving you more flexibility in managing Medicare premiums and required minimum distributions (RMDs) later in life.

Why This Matters Beyond Taxes: Your PIN

At this point, it’s tempting to frame this curveball as a pure tax problem.

At Rubino & Liang, however, we look at it through a different lens—your PIN: Portfolio Income Needs.

Your PIN is the reliable income your portfolio must generate to support your retirement lifestyle.

Once your PIN is clearly defined, the question shifts:

From: “Should this dollar be pre-tax or Roth?” 

To: “Which bucket best supports the income you’ll need, and when?”

[Resource] Use our Portfolio Income Needs calculator to determine your initial PIN. 

What You Can and Can’t Control

You can’t change the IRS mandate, and you can’t control whether your employer adds a Roth option to their plan.

But you can control how you pivot. 

You can change your strategy by intentionally deciding where each dollar works hardest. 

You could:

• Lean more heavily on a backdoor Roth (this could become your primary “safety valve” if your work plan fails you).
• Optimize your tax “buckets” to better protect your future income.
• Adjust your 2026 cash flow to account for the loss of a pre-tax deduction.

The rules have changed. 

But, your goals haven’t; you just need a new map to get there.

That map is our 365 Retirement Plan Process. We use this framework to stress-test tax changes against your PIN, helping to ensure your strategy stays flexible even when the IRS moves the goalposts. 

By looking at your plan through a 365-degree lens, we help you turn these legislative “curveballs” into calculated moves for your future.

Curveballs will keep coming.

What matters is having a framework that keeps your retirement income plan intact.

Next Steps: Navigating the Red Zone

If you’re within 10 years of retirement, you’re in the Red Zone—the most critical phase of your financial life. Decisions made during this period can have outsized, long-lasting consequences.

If you’d like to see how this 2026 “curveball” affects your specific situation, contact us for a complimentary financial planning call.

For over 20 years, Rubino & Liang has specialized in helping pre-retirees transition from saving to spending with confidence. We’ll help you stress-test your strategy against your PIN to help ensure your income remains reliable, regardless of how the tax rules change.