New 401(k) catch-up rule may hit older high earners in 2026

As the landscape of retirement savings evolves, 401(k) contribution limits will be changing next year for certain older Americans. Whether these changes are advantageous or not largely hinges on your tax strategy, according to financial experts.

Starting in 2026, those aged 50 and up with an income of at least $145,000 from the previous year will be required to direct their catch-up contributions to a Roth 401(k), as mandated by the IRS. This stipulation, part of Secure Act 2.0, was initially set for implementation in 2024 but has been postponed to allow companies time to adjust. It’s noteworthy as the first mandated Roth feature added to tax regulations.

Contributions to a Roth 401(k) are deducted from income after taxes, meaning there is no initial tax break for these retirement savings. However, funds grow tax-free and are withdrawn without penalty. Experts suggest this shift may compel older savers to reassess their current and projected tax situations.

“This could be detrimental, or maybe not,” remarked Isaac Bradley, a financial planning director at HB Wealth, in an interview with USA TODAY. “It really depends on your expectations of future tax rates.”

As of 2025, Americans aged 50 and older will be able to save an extra $7,500 each year in their employer-sponsored 401(k) plan, raising their total contribution limit to $31,000.

Individuals aged 60 to 63 may add an additional $3,750, which increases the total permissible contribution for the year to $34,750.

Once individuals reach age 64, the catch-up limit reverts to $7,500.

These limits will be adjusted annually for inflation, and it’s expected that they could be higher by 2026.

In cases where employers provide both a Roth and a traditional 401(k) in 2026, only employees with earnings under $145,000 the previous year at their current firm will have the option to choose where to allocate their contributions. Those exceeding this income limit must route their catch-up contributions to the Roth 401(k).

If an employer does not offer a Roth 401(k), high earners will not be permitted to make any catch-up contributions.

◾ Should tax rates increase in the future, tax-free withdrawals from a Roth 401(k) could become significantly more beneficial, suggests Steven Conners, CEO of Conners Wealth Management.

◾ Conversely, if tax rates decrease, individuals may find themselves paying more in taxes on their retirement savings, as per expert insights.

◾ If tax rates remain stable, according to Bradley, “it won’t make a difference where your money is allocated, as the end result will be equivalent.” For instance, if you put $100 into a traditional 401(k) and it appreciates to $200, and then you pay a 20% income tax, you would end up with $160. In contrast, if you pay 20% taxes upfront on that $100—leaving you with $80—then a Roth 401(k) growing to $160 would yield the same result.

In times of market growth or portfolio surges, the impact of tax rates on overall savings might become negligible, as Conners noted.