High-Income Earner Contribution Exceptions Go into Effect in 2026
Starting in 2026, individuals who have gross yearly FICA wages that are higher than $145,000 will no longer have the option to make their catch-up contributions into the tax-deferred side of their employer retirement plans. Why does this matter? For many high-income individuals, putting money into the tax-deferred side of their retirement plan has been one strategy to lower their annual tax obligation. However, with this change, high-income earners will have to allocate their catch-up contribution to the designated Roth account of their retirement plan (if their plan offers one) and pay taxes upfront.
Note: if you are in this group, we recommend speaking with your Retirement Plan Administrator to determine whether a Roth account option available or can be added to your plan.
While this change does eliminate the choice between tax-deferred contributions or Roth contributions for high-income earners, you may choose to look at this as a forced positive. Why? Because you can’t be taxed twice on retirement income (provided you withdraw it properly). While you will still have to pay taxes up front on the Roth contribution to your employer sponsored retirement plan, you will never have to pay taxes on those funds again. As demonstrated in the Tax Control Triangle (see figure below), tax-free growth in employee retirement accounts makes up just one side of the triangle.
At CWM, when we look at retirement planning and how to pay for expenses in retirement, we like to have choices of where that money can come from. Making sure that you have assets on each side of the triangle can help ensure that you have a level tax obligation in retirement. For instance, if large unforeseen expenses happen, you will not be forced to take funds from a taxable source if you have a tax-free source funded and ready.
Keep in Mind…
One of the reasons the rollout of these changes has been delayed until 2026, was to give employers time to amend their employee retirement plans to add a Roth option. However, it should be noted that employers were not required by the Act to offer a Roth option to available retirement plans, so some technically eligible individuals will not be able to take advantage of catch-up contributions.
Additionally, if you are self-employed and earn more than $145,000 you are not subject to this rule and can make contributions as detailed in the previously shown chart.
If you are interested in a more robust conversation about changes stemming from SECURE ACT 2.0 or the “Tax Control Triangle”, please click here to schedule a conversation or contact us at (425) 778-6160.
Comprehensive Wealth Management, LLC (CWM) is an SEC registered Investment Advisor and Pacific Northwest wealth management firm that partners with clients to articulate and help achieve their financial goals as prudently as possible. Our high-touch, client-focused investment planning and implementation makes us the first call for executives, business owners, and other thoughtful investors to help strengthen their financial health holistically and intentionally, managing risk while pursuing long-term gains.
Comprehensive Wealth Management, LLC (CWM) does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. CWM makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
