I’m A Financial Planner: 4 Things To Know About 401(k) Changes In 2026

For 2026 the IRS raised the 401(k) elective deferral limit to $24,500 (up from $23,500 in 2025) and, under the Secure 2.0 Act, workers aged 50+ earning $145,000 or more must make catch-up contributions as Roth (after‑tax) contributions, meaning they pay tax now but receive tax‑free retirement withdrawals. The rule will directly affect take‑home pay and tax planning for higher earners and shifts the trade‑off between pre‑tax and Roth savings; advisors recommend a balanced mix of traditional and Roth contributions, maximizing employer matches, and considering HSAs (which retain a pre‑tax/triple‑tax advantage) as part of retirement strategies.

Analysis

The IRS raised the 401(k) elective deferral limit to $24,500 for 2026, up from $23,500 in 2025, and the Secure 2.0 Act requires that workers aged 50 or over with annual income of $145,000 or more must make any catch-up contributions as after-tax Roth 401(k) contributions, according to Charles Schwab and comments from Bethany Dever of Rockland Trust. That provision means affected employees will pay taxes on catch-up contributions now but enjoy tax-free withdrawals on those amounts in retirement.

The rule will directly reduce take-home pay for the impacted cohort and creates a material tax-timing trade-off that should be evaluated against expectations for future tax rates; Dever explicitly recommends a balanced mix of traditional and Roth contributions to smooth tax exposure. Vanguard research cited in the article indicates the vast majority of people over 50 do not currently make catch-up contributions, so many eligible savers may need to change behavior to take full advantage of higher limits.

Advisors in the article emphasize maximizing employer matches and using Health Savings Accounts as an alternative because HSAs remain pre-tax, permit tax-free qualified withdrawals and can be invested for long-term growth, a combination Dever describes as a "triple tax advantage." Practical steps noted include increasing monthly deferrals toward the new $24,500 limit, using automatic transfers to build HSA balances before year-end, and assessing whether Roth catch-ups align with individual retirement tax assumptions.

Key Decisions for Investors

• If you will be age 50+ and expect 2026 income of $145,000 or more, re-run cashflow and tax projections now to quantify the reduction in take-home pay from after-tax Roth catch-up contributions
• Adopt a balanced contributions strategy across traditional and Roth accounts to manage tax exposure in retirement while ensuring you contribute enough to capture your full employer match
• For those not currently making catch-up contributions, consider increasing deferrals toward the new $24,500 elective limit and evaluate maxing an HSA before Dec. 31 to capture its pre-tax funding and tax-free qualified withdrawals
• Confirm with your plan administrator that catch-up contributions will be designated to a Roth 401(k) as required and use automatic transfers where appropriate to implement the chosen strategy