Prepare for 2026: 401(k) Catch-Up Contributions Changing

For individuals over 50, 2026 will bring some significant changes to catch-up contributions to your 401(k) retirement plan. If you are in this age group and earning more than $145,000 annually, it’s time to start planning now. 

401(k) Catch-Up Contributions: What’s Changing in 2026? 

Currently, individuals who are 50 and older can make additional contributions—known as catch-up contributions—to their 401(k) plans. As of today, this amount is $7,500 per year. Those who are 60-63 get an extra boost with an additional $3,750, bringing the total extra contribution to $11,250. 

Historically, these catch-up contributions could be made on a pre-tax basis, reducing taxable income in the year of contribution. However, beginning in 2026, if your income exceeds $145,000 (adjusted for inflation), your catch-up contributions must go into the Roth portion of your 401(k) plan. 

The Good and the Bad 

• The Good: Contributions to the Roth 401(k) grow tax-free, meaning that when you withdraw the funds in retirement, you won’t owe any taxes. 
• The Bad: Roth contributions are made with after-tax dollars. This means that if you previously relied on a tax deduction for your catch-up contributions, you’ll now see an increase in your taxable income in the year of contribution. 

What Does This Mean for Your Taxes? 

For individuals who are accustomed to deferring taxes on their catch-up contributions, this change will have a direct impact on your tax situation: 

• If you previously contributed the extra $7,500 (or $11,250 for those over 60) to a traditional 401(k), you received a tax deduction for that amount. 
• In 2026, that deduction disappears if your income exceeds the threshold. 
• This means higher taxable income and potentially higher tax withholding needs from your paycheck. 

Legislative Uncertainty 

As of now, this change is scheduled to take effect in 2026. However, Congress has a history of making last-minute adjustments to tax and retirement laws. The current tax code is set to expire at the end of 2025, and whether it will be extended or modified is uncertain. This means financial professionals, attorneys, and employers will be busy preparing for potential shifts in tax law and retirement planning. 

What Should You Do? 

1. Start Planning Now: Adjusting for a higher tax bill takes preparation. Work with your CPA and financial advisor in 2025 to evaluate how this change will affect your overall financial picture. 
2. Review Your Withholdings: If your tax burden increases, you may need to adjust your federal and state tax withholdings to avoid surprises at tax time. 
3. Assess Your Cash Flow: With Roth contributions reducing take-home pay, you may need to rethink your budgeting and spending. 
4. Confirm Your Employer’s Plan Updates: Not all 401(k) plans currently offer a Roth option. Employers will need to update their plans to accommodate this change, which could involve legal and administrative costs. If your employer does not update their plan, you may lose the ability to make catch-up contributions entirely. 

2026 may seem far away, but financial planning is always best done in advance. If you are over 50 and earning above the income threshold, take proactive steps now to ensure you are financially prepared for these changes.