The IRS Is Taking a Major Tax Break Away From Some Workers Aged 50 and Up Next Year

You probably already know that saving enough for retirement is challenging, even if you have a steady income. When you're young, a low salary and more immediate priorities can cause you to put retirement on the back burner. This could put you behind, but you might be able to make up for lost time by taking advantage of catch-up contributions.

These are extra contributions you're allowed to make to your retirement accounts, beginning in the year you turn 50, in addition to the standard contribution limits for the year. They're a great way to build your savings and save a little money on taxes today. But starting in 2026, some workers will lose the ability to write off these catch-up contributions in the year they make them.

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How catch-up contributions work

Retirement accounts fall into two camps: tax-deferred and Roth. Tax-deferred accounts, like traditional IRAs and 401(k)s, allow you to avoid taxes on your contributions in the year that you make them, but require you to pay taxes on your withdrawals later. This is often advantageous for high earners who expect their incomes to drop in retirement. By waiting to pay taxes, they may lose a smaller percentage of their savings to the government.

Then there are Roth accounts, which work the opposite way. You pay taxes on your contributions in the year you make them, but you're allowed to take tax-free withdrawals in retirement.

The government limits how much you can contribute to your retirement accounts because of these tax benefits. In 2025, you can only save up to $23,500 in your 401(k) if you're under 50. This limit may go up a bit in 2026.

Workers 50 and older are allowed to make catch-up contributions on top of this standard limit. Those aged 50 to 59, or 64 or older, may save up to $31,000 in 2025, while those aged 60 to 63 can save up to $34,750. Again, these limits may go up next year.

Typically, you can stash as much as you'd like in your traditional or Roth 401(k), as long as total contributions to each type of account don't exceed your annual contribution limits. But a new law change set to take effect Jan. 1, 2026, will place new limits on where wealthy earners can stash their catch-up contributions.

Wealthy Americans won't get an upfront tax break for catch-up contributions

Beginning next year, any catch-up contributions you make must be Roth if you earn more than $145,000 in 2025. This income limit is indexed to inflation, so it will increase in future years. The change is supposed to force wealthier Americans to pay taxes on more of their income when they're in a higher tax bracket, rather than waiting until retirement when they're in a lower tax bracket.

This could result in a higher tax bill for 2026, particularly if you intend to max out your 401(k) contributions. If you're concerned about this, you might want to speak with an accountant before you make any catch-up contributions for next year.

You can continue to make tax-deferred contributions to a traditional 401(k) until you reach the standard contribution limit that applies to those under 50. The government hasn't announced the contribution limits for next year yet, so be sure to check this before you start saving in 2026.

The upside to this new rule is that you'll be able to withdraw your catch-up contributions tax-free in retirement. Having this option gives you more control over your retirement tax bill. You can withdraw a mix of tax-deferred and Roth savings to keep yourself within a certain tax bracket without reducing your standard of living.

If you want to avoid taxes on some of your 401(k) contributions next year, put your money in your traditional 401(k) first. Then, once you've hit the standard contribution limit for the year, switch over to your Roth 401(k) if there's one available to you.

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