If you’re middle-aged and in a high income bracket, you can expect the way you contribute to your 401(k) to change starting next year.
In September, the Internal Revenue Service (IRS), the federal tax agency, announced new regulations regarding the way catch-up contributions work starting in 2026. Specifically, the IRS has introduced a new income test for taxpayers looking to contribute to particular retirement accounts.
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Here’s what you need to know.
Make $145K or more? You have fewer ways to save
For 2025, all workers can contribute up to $23,500 into 401(k) plans. However, workers over the age of 50 can make catch-up contributions in order to save more in these tax-advantaged accounts as they approach retirement.
Typically, workers have the choice to invest catch-up funds into either a regular 401(k) plan or a Roth 401(k) plan.
Starting in 2026, workers in this age group face an income test. If your income from your current employer was over $145,000 in the previous year, your catch-up contributions may only be made to a Roth 401(k) plan.
The difference between a standard 401(k) and a Roth 401(k) is the tax treatment. Workers can contribute pre-tax income to a standard 401(k), which enables them to claim contributions as a deduction on their tax returns. A Roth 401(k), meanwhile, is designed for after-tax income, which means you do not enjoy the tax deduction on contributions.
Put simply, this new rule adds an upfront tax burden for high-income earners (1).
This seemingly small change can have big consequences for many workers. Just under one in five people between the ages of 45 and 54 earn over $100,000 a year, according to YouGov, so millions of people could be impacted by this new rule (2).
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
What can you do?
If you believe this rule change might impact you, the first step is to reach out to your employer and ask if they offer a Roth 401(k) plan for employees. Nearly 93% of employers offer a Roth 401(k) plan, according to Plan Sponsor Council of America, but there is a chance your employer is part of the remaining 7% (1).
It’s also important to note that the $145,000 income test applies to each employer. That means if you started working for a new employer recently, only the aggregate income you earned from this new employer counts towards the test. If you work for multiple employers, your income won’t be added together, unless you meet very specific criteria, such as your employers being controlled by the same parent company, according to Groom Law Group (3).
Put simply, there are multiple layers of complexity that have just been added to the catch-up contributions you can make to these tax-sheltered accounts.
This could be a good time to reach out to your financial adviser, certified financial planner or tax lawyer to see if these new rules impact you. If your retirement plan included aggressive catch-up contributions, this could also be a good time to update those plans to reflect the upfront tax burden you may have to face starting next year.
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
CNBC (1); YouGov (2); Groom Law Group (3)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.