Smart Retirement Strategies for High Earners

High-income earners in the top tax brackets have different financial levers than most people, which presents them with both an opportunity and a responsibility to create a tax-smart plan that efficiently compounds wealth to save more income.  Achieving this balance requires strategies that consider the evolving tax laws that directly impact how individuals save and invest.

Understanding recent updates to retirement and saving rules can add perspective when exploring various tax-efficient tactics. These changes, many of which take effect between 2025 and 2026, will impact how high earners can contribute, defer, and access retirement funds.

Retirement Plan Changes for 2025 and 2026

Mandatory Roth Catch-up Contributions for High Earners

Under SECURE Act 2.0, beginning January 1, 2026 (with a grace period for employers to adapt through December 31, 2026), participants with Federal Insurance Contributions Act (FICA) wages exceeding $145,000 in the prior year (adjusted for inflation) must make catch-up contributions on a Roth basis in employer-sponsored retirement plans (401(k), 403(b), etc.).  Participants above the threshold will pay tax on their catch-up dollars today (not deferred). Future growth and withdrawals will be tax-free (withdrawals must satisfy Roth rules).  

Super Catch-Up Limits for Ages 60–63

For individuals aged 60–63, SECURE Act 2.0 institutes a higher catch-up contribution limit: 150% of the standard catch-up amount.  In 2025, those with eligible plans in that age group can make catch-ups of up to $11,250.

Increase in Health Savings Account (HSA) Limits

The Internal Revenue Service (IRS) has raised the HSA contribution ceiling for 2025 to $4,300 for individual coverage and $8,550 for family coverage, with a $1,000 catch-up contribution for individuals aged 55 and over. In 2026, those limits increase slightly to $4,400 and $8,750, respectively.  The underlying high-deductible health plan (HDHP) thresholds also rise.

Financial Planning Maneuvers for High-Income Earners Amidst the New Legislation  

The usual financial planning strategies won’t work as well for affluent households under the new legislation. Here are some considerations for high-net-worth (HNW) clients.

• Pre-tax vs. Roth Trade-offs: Traditionally, high earners favor pre-tax contributions to reduce taxable income immediately. However, mandatory Roth catch-ups mean paying tax on those contributions now with the benefit of tax-free growth.  Roth contributions can provide long-term advantages for HNW earners who expect to be in similar or higher brackets in retirement.
• Maximizing Catch-Up Room: The new super catch-up thresholds can add up to $11,250 in retirement funds in 2025, which can compound meaningfully over 5–10 years.
• HSAs as a Tax Trifecta Bonus: HSAs offer pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified medical spending. Maximizing HSA dollars now allows savings to grow for the future, providing a dedicated pool of funds to cover healthcare expenses later in retirement.
• Account Diversification for Tax Benefits: As Roth becomes more prominent for catch-up contributions, a balance among pre-tax retirement accounts, Roth accounts, and taxable brokerage-style investments makes it easier to manage taxes as income, rates, or laws change.
• Planning for RMDs and Other Retirement-Era Tax Burdens: The more pre-tax retirement savings an individual has, the greater the required minimum distributions (RMDs) will be, which can impact retirement tax brackets. Building Roth balances can help smooth future taxable income, as Roth balances are not subject to RMDs.

Financial Impacts: By the Numbers

Increased catch-up savings example: A 62-year-old with an annual compensation exceeding $145,000 who contributes the maximum super catch-up for 2025 adds an extra $3,750 to their retirement savings (contributing $11,250 versus the standard $7,500), and meaningfully changes present and future tax exposure. At a 37% marginal rate, the additional funds reduce today’s federal tax bill by about $1,388 as a pre-tax contribution.  As a Roth contribution, the participant pays the tax upfront. However, the $3,750 could grow to more than $14,000 over 20 years at a 7% return, completely tax-free on withdrawal.

HSA benefit quantified: Using the 2025 limits, a two-person household, both 55-plus, could contribute up to $10,550 via HSAs (each $8,550 with a $1,000 catch-up) under eligible coverage. The tax savings will depend on marginal rates. For those in the highest brackets (35–37%), it can provide thousands in federal tax reduction in the contribution year, plus the value of growth and tax-free withdrawals for medical or, after age 65, for other purposes (subject to ordinary income tax if non-medical).

Planning Steps to Consider Now

• Ensure your employer’s retirement plan offers a Roth option, especially if Roth catch-ups will apply to you in 2026.
• Take advantage of the super catch-up option if you are aged 60–63 to increase compounded wealth before retirement.
• Max out HSAs (if you qualify) and treat them as long-term savings/investment accounts rather than expense payers for their triple tax benefits and compounding potential.
• Assess whether Roth conversions make sense for you during lower taxable income years and consult with a financial advisor about shifting future tax exposure away from RMDs or high distributions.

If you are a high-income earner and would like to know more about how these changes will affect your portfolio, projection of retirement income, or tax burden, contact an SHP Financial advisor today for your complimentary review.