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The New 401(K) Catch-Up Contribution Changes Coming In 2026

The New 401(K) Catch-Up Contribution Changes Coming In 2026

Set to take effect in 2026 (Notice 2023-62), the new 401(k) catch-up contribution changes may impact the tax advantages associated with traditional 401(k) plans.

In December 2022, Congress ushered in the SECURE 2.0 Act, an ambitious piece of legislation aimed at bolstering the retirement prospects of both current and future generations of American workers.

This comprehensive act introduced numerous changes, with a particular focus on the rules governing 401(k) catch-up contributions.

While the primary objective is to improve retirement outcomes, it’s important to understand that these changes might result in increased tax liabilities for millions of Americans.

What Are the Present Regulations?

Individuals participating in employer-sponsored retirement plans like 401(k)s, as well as comparable plans such as 403(b)s and 457(b)s, have the option to make “catch-up” contributions on top of the standard annual limit, provided they are 50 years of age or older.

As of this year, the contribution limit for a 401(k) is $22,500. Individuals aged 50+ can contribute an extra $7,500, bringing the total to $30,000.

According to a recent Vanguard report based on approximately 1,700 retirement plans, 16 percent of eligible employees took advantage of catch-up contributions in 2022.

“Contributions to 401(k)s and analogous employer-sponsored plans are typically made on a pre-tax basis, resulting in a reduction of annual taxable income. It’s important to note that in return for this tax benefit, any funds withdrawn from a 401(k) are subject to taxation at standard income-tax rates,” says David Neuwirth, Senior Vice President of Investments at David Lerner Associates, Inc.

Assets held within 401(k)s and similar retirement accounts are generally required to remain invested until the individual reaches the age of 59½ to avoid incurring a 10 percent early withdrawal penalty.

Understanding the Rationale Behind the Change

When Congress passes legislation offering tax incentives, it seeks to balance the revenue loss with adjustments that generate additional income for the government.

The SECURE Act 2.0 included provisions designed to counterbalance the tax breaks, such as raising the age for required minimum distributions and indexing catch-up contributions to inflation.

These changes aim to encourage greater retirement savings while ensuring the government’s fiscal health.

The IRS’s Decision to Delay the Rule Change

The American Benefits Council and major retirement plan sponsors, including Charles Swab and Fidelity Investments, wrote a letter to Congress in July requesting a delay in the implementation of the new rule.

In a move driven by practical considerations, the IRS accepted their request. The reason was to provide more time to accommodate after-tax Roth deposits in a broader range of retirement plans.

While some 401(k) plans already offer a Roth option, many do not, and introducing this feature involves complex administrative adjustments.

Implications for the Initial Tax Benefit

For years, higher-income earners aged 50 and above have enjoyed the initial tax advantages associated with traditional 401(k) contributions.

This tax benefit has been especially valuable for those who retire in lower tax brackets, as they pay less tax compared to their working years.

However, beginning in 2026, older workers earning over $145,000 annually will no longer be eligible to make catch-up contributions to a traditional 401(k) plan.

Reduced Tax Savings and Take-Home Pay

The shift towards “Rothification” of catch-up contributions means that older, high-earning workers will experience diminished tax savings and adjusted take-home pay.

Instead of immediate tax deductions associated with traditional 401(k) contributions, catch-up contributions will now be treated as Roth contributions and taxed accordingly.

Long-Term Savings Benefits

While the immediate tax benefit of traditional 401(k) catch-up contributions may no longer be available for high earners after 2026, the advantages of contributing to a Roth 401(k) plan remain intact.

These after-tax contributions will grow tax-free, making them a valuable long-term investment.

In the event of rising tax rates or entering a higher tax bracket during retirement, this approach can lead to substantial savings over time.

Preparation Time Until 2026

Originally slated to take effect at the beginning of 2024, the new 401(k) catch-up rules have been postponed by the IRS.

This two-year extension comes in response to concerns voiced by retirement program managers and employees about the challenges of implementing such significant changes in a short time frame.


The SECURE 2.0 Act brings pivotal changes to the landscape of retirement savings, particularly in the realm of 401(k) catch-up contributions.

While the alterations may pose initial challenges for high-earning individuals, there are long-term benefits to be gained.

As these new 401(k) catch-up contribution changes loom on the horizon, individuals and employers alike need to prepare for this transformation in retirement planning, ensuring a secure financial future for all.

Stay ahead of the game with David Lerner Associates best retirement plans! Get ready for the new 401(k) catch-up contribution changes with us. Secure your financial future today!

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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