High-Income 401(k) Participants: Pay Attention!
A New Law Is Changing Catch-Up Contributions
If you’re a high-income earner, you may have already seen a message from American Express or the 401(k)-plan administrator (Principal) about an important change that has taken effect.
Beginning January 1, 2026, employees earning over $150,000 (based on prior-year wages with American Express) will be required to make any 401(k) catch-up contributions on a Roth basis (after-tax) rather than pre-tax.
This change stems from recent legislation and applies specifically to catch-up contributions not standard 401(k) contributions.
Note: New employees are not affected in their first year at American Express, regardless of income, because they have no prior-year wages with the employer.
A Quick Refresher: What Are Catch-Up Contributions?
Catch-up contributions are designed to help older workers boost retirement savings as they approach retirement.
For 2026:
Ages 50–59 and 64+: Total max contribution: $32,500
Ages 60–63: Total max contribution: $35,750
Under the new rule, high-income earners must make these catch-up contributions as Roth contributions, meaning taxes are paid upfront.
Roth vs. Pre-Tax: Drawbacks and Benefits
Previously, employees could choose whether their catch-up contributions went into a traditional (pre-tax) 401(k) or Roth 401(k), regardless of income. Many high earners opted for pre-tax contributions to reduce current taxable income.
With Roth catch-up contributions:
Contributions are taxed upfront
Qualified withdrawals in retirement are tax-free
While losing the pre-tax deduction may sound like a drawback, this shift can offer meaningful long-term advantages.
Why Roth Assets Can Be Valuable
Roth withdrawals do not increase taxable income in retirement
They do not trigger required minimum distributions (RMDs) during your lifetime
They can help manage: Future tax brackets Medicare premium surcharges The tax impact of Social Security benefits
For high earners with Social Security benefits, significant pre-tax savings, and other income sources, taxable income in retirement can end up higher than expected. Having assets in both Roth and traditional accounts creates tax diversification and more flexibility when drawing income later.
What Does This Mean for American Express Employees?
While employers are not required to offer Roth 401(k) options, American Express does.
Employer plans also have flexibility in how and when they implement the rule. Some require employee consent, others automatically convert eligible participants. American Express is handling the transition automatically for employees impacted by this law.
That means:
No immediate action may be required on your part
But the change does affect your long-term tax planning strategy
A Smart Next Step
Even though this change is being handled administratively, it’s worth understanding how Roth catch-up contributions fit into your broader financial plan, especially if you expect:
High retirement income
Significant pre-tax savings
Changing tax laws in the future
If you’d like to discuss how this impacts your situation or explore proactive tax planning strategies, schedule a no-obligation conversation here to review your options and build a plan that works for you.
