How To Handle the New 401(k) Rule That Goes Into Effect in 2026

In 2026, a new IRS rule will reshape 401(k) plan contributions for millions of workers. Originally a part of the SECURE 2.0 Act of 2022, the rule alters how high-income Americans can save for retirement — particularly as it pertains to catch-up contributions.

Here are all the details you need to know about how the new rule affects your 401(k) plan.

When it comes to contributing money to retirement accounts, employees have annual contribution limits assigned by the IRS — or a maximum amount they are legally allowed to contribute per calendar year. Employees aged 50 and over, however, are allowed additional catch-up contributions — amounts beyond the standard, annual limit designed to help employees “catch up” on retirement savings if they have fallen behind. According to the IRS, for the 2025 tax year, workers under 50 are allowed up to $23,500 in retirement contributions; workers over 50 are allowed an additional $7,500 in catch-up contributions.

Previously, employees had the option of allocating these catch-up contributions to either a traditional 401(k) — using pre-tax dollars — or a Roth 401(k) — using after-tax dollars. Starting in 2026, however, if employees earned more than $145,000 in the previous year, their 401(k) catch-up contributions will have to go into a Roth 401(k). This new regulation will not only apply to a traditional 401(k), but also a 403(b), 457(b), SEP IRA and SIMPLE IRA.

Learn More: Suze Orman Calls This $1.6 Million 401(k) Rollover Move ‘Crazy’ — What She Recommends Instead

According to financial experts, the new regulation won’t drastically overhaul how workers save for retirement, but it may require them to take a few steps in preparation:

Director of planning and advice at Key Wealth, Tina A. Myers, suggested reviewing your annual income and retirement contributions before the year ends to see if this new regulation will affect you. If you are already using an all-Roth system or earned under $145,000 annually, nothing will change for you. If you were utilizing a traditional 401(k) and/or made over $145,000, read on.

“If your employer doesn’t offer a Roth 401(k) option by 2026, you won’t be allowed to make catch-up contributions at all,” stated Andrew Latham, CFP and content director at SuperMoney.com. So check with your employer and push them to get compliant if they aren’t already. Fortunately, more employers have adopted Roth 401(k) options over the last few years in preparation for this new regulation.

If it turns out your employer does not offer a Roth 401(k) option and you don’t want to completely lose the opportunity to put away extra savings, Latham suggested some loopholes: maxing out a Roth IRA in addition to your traditional 401(k), funding an HSA (if eligible) or building in taxable brokerage accounts to keep growing your tax-diversified bucket.

If HR has confirmed that a Roth option will be in place by 2026, check your payroll setup to ensure catch-up contributions will be coded as “Roth.” Don’t risk losing catch-up contributions over a technical error.

Roth 401(k) options help reduce overall taxes during withdrawal years and support more strategic income planning. Additionally, while short-term taxes will go up, this new regulation may actually result in a beneficial hedge against future tax rate increases and provide further tax diversification in retirement. But, for those who believe they will be in a lower tax bracket in retirement, utilizing pre-tax vehicles like traditional IRAs could be beneficial. Take into account your long-term plan and decide which moves make sense for you.

Should workers invest differently as a result of this new regulation? Associate wealth manager at Fairway Wealth Management LLC, Alex Canitano, suggested they should. Because withdrawals won’t be subject to taxes when distributed, he advised investors be more aggressive with their Roth dollars as compared to the money in their traditional 401(k) accounts.

“Grow the Roth money as much as possible,” said Canitano.

It’s important to note, however, that those closer to retirement should be mindful of their risk tolerance. Approaching withdrawals can shorten riskier investments’ odds of delivering when you need them.

How To Handle the New 401(k) Rule That Goes Into Effect in 2026

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