Don't Forget About This 401(k) Rule Change if You're Planning to Max Yours Out in 2026
Key Points
Exceeding your 401(k)'s annual contribution limit can trigger tax penalties.
Those earning more than $150,000 must make Roth catch-up contributions starting this year.
Those with lower incomes may continue making tax-deferred catch-up contributions if they wish.
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A high 401(k) contribution rate is great, especially if you weren't able to save as much as you wanted to in the past. But there is such a thing as contributing too much to your 401(k), and it can trigger costly tax penalties that set you back.
Everyone has a contribution limit for the year, which depends on their age. This is $24,500 for adults under 50 in 2026, $32,500 for those 50 to 59, and 64 and older; it's $35,750 for those aged 60 to 63. But if you're just going by this alone, there's a chance you could still wind up in hot water with the IRS, depending on your annual income.
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High earners can no longer make tax-deferred catch-up contributions
The extra money over $24,500 that adults over 50 can contribute to their 401(k)s is known as catch-up contributions. They're designed to help you make up for lost time if you weren't able to save as much as you'd hoped when you were younger.
Most adults can make catch-up contributions to traditional or Roth 401(k)s, provided they have access to both account types. But as of 2026, those with annual incomes of $150,000 or more are not allowed to make catch-up contributions to tax-deferred 401(k)s. They must use Roth 401(k)s for these extra contributions or stop contributing to their 401(k) for the year if they don't have access to a Roth account.
This move forces high earners to pay taxes on at least a portion of their retirement contributions in the year they make them, thereby raising their tax bill for that year. The upside is that once you retire, you'll be able to withdraw these funds tax- and penalty-free. Having Roth savings can give you greater control over your retirement tax bills, which may help you stretch your nest egg even further.
What to do if this 401(k) rule change applies to you
If this rule change applies to you, you can continue putting money in your traditional 401(k) until you've reached the $24,500 annual limit for adults under 50. If you're not sure how much you've contributed so far this year, check with your plan administrator or your HR department.
Once you've reached the standard contribution limit, you'll need to switch over to a Roth 401(k) for the remainder of the year. Be careful not to exceed the annual contribution limit for your age, or you could still face penalties. And if a Roth 401(k) isn't an option for you, consider stashing money in an IRA or a taxable brokerage account instead.
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