This 2026 Retirement Rule Change Could Have Some Older Workers Bracing for Higher Taxes

Workplace retirement accounts usually operate the same, whether you're a 22-year-old working your first job out of college or a 65-year-old planning your retirement party. Contribution limits increase over the years, and your plan's investments might change. But by and large, the rules stay the same, at least until you turn 50.

At that point, older workers have the option to make catch-up contributions -- additional tax-advantaged retirement account contributions that can help them make up for prior years when they didn't save as much as they wanted to. Historically, this has provided a nice tax break for those able to take advantage of the opportunity. But in 2026, a new rule change could take this tax break away for some workers.

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How 401(k) catch-up contributions work

Individuals under 50 can save up to $24,500 in their 401(k)s in 2026. That's slightly higher than the $23,500 these workers could save in 2025.

Catch-up contributions are extra contributions that workers 50 and older are allowed to make on top of the above limits. There used to be a single catch-up contribution limit, but now there are two tiers. Those aged 50 to 59 and 64 and older can make up to $8,000 in catch-up contributions, bringing their total 2026 deferral limit to $32,500. Workers aged 60 to 63 by the end of 2026 can make an $11,250 super catch-up contribution, giving them a 2026 total of $35,750.

Under the current law, workers who have a choice between a traditional and a Roth 401(k) can allocate their catch-up contributions to whichever account they prefer. Roth 401(k)s have no immediate tax break, but allow tax-free withdrawals in retirement. Traditional 401(k)s offer an upfront tax break, which can be especially appealing to high earners, but you pay taxes on your withdrawals. However, a legislative change could soon eliminate the tax-deferred catch-up contribution option for some high earners.

Tax-deferred catch-up contributions are ending for the wealthy

Beginning in 2026, workers who earn more than a certain amount must make catch-up contributions on a Roth basis. This could force them to pay a higher tax bill in the present. It could also prohibit them from making catch-up contributions altogether if their plan doesn't offer a Roth 401(k) option.

Your income in the previous year will determine whether this rule applies to you. If you earned $150,000 or more in 2025, you will not be able to make a traditional 401(k) catch-up contribution in 2026. The $150,000 limit is indexed for inflation, so it could increase in future years. If you're on the cusp, you may regain the option to make tax-deferred catch-up contributions in future years, provided your income doesn't increase.

Workers with lower incomes will still have the option to choose between tax-deferred or Roth catch-up contributions in 2026 and beyond. It's also worth noting that this rule only applies to workplace plans, such as 401(k)s, not to IRAs.

Those who are limited to Roth catch-up contributions next year will still be eligible to make traditional 401(k) contributions until they reach the $24,500 limit for adults under 50. Doing this could still result in a sizable tax break that offsets some of the increase you'll see from making Roth catch-up contributions.

Just make sure you're aware of when you're nearing the $24,500 contribution limit for the year. Remember to stop contributing to your traditional 401(k) if necessary and switch to using your Roth 401(k). Exceeding the annual limits can result in costly tax penalties, so contact your plan administrator to resolve any errors as soon as you can.

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