What’s Ahead for 401(k) Contributions in 2026
Published on by Mark Hamad in Tax Services, Estate Planning
As we move through 2025, retirement savers should stay informed about evolving 401(k) contribution rules that could significantly impact their tax strategies. Earlier this year, we explored how SECURE 2.0 affects retirement planning and these updates build on that foundation. Recent changes from the IRS, combined with provisions from the SECURE 2.0 Act, are reshaping how Americans save for retirement, particularly for higher earners and those nearing retirement age.
2025 contribution increases create new opportunities
To recap our earlier blog post on this topic, the annual 401(k) contribution limit has increased to $23,500 in 2025, up from $23,000 in 2024. This boost gives participants more room to grow retirement savings on a tax advantaged basis.
For workers aged 50 and older, catch-up contributions remain at $7,500, raising the total potential contribution to $31,000. Participants aged 60 to 63 may also be eligible for “super” catch-up contributions of $11,250 (instead of the $7,500), bringing their potential total to $34,750. Currently, 401(k) participants who are 50 and older can opt to put their catch-up contributions into a pre-tax 401(k) account, an after-tax Roth 401(k) account, or a combination of the two.
2026 brings major shifts for high earners
Beginning January 1, 2026, workers earning more than $145,000 annually will be required to make their catch-up contributions using after-tax dollars through Roth 401(k) accounts. This is a significant departure from current rules, where participants could choose to make catch-up contributions with pre-tax or after-tax dollars.
Under the new system, high earners can still contribute up to the general limit using pre-tax dollars, but any catch-up amounts must be contributed to Roth accounts and taxed upfront. The $145,000 threshold is indexed to inflation and will likely increase over time. However, this change means affected workers will pay more in taxes during their peak earning years rather than deferring that tax burden until retirement.
Employer considerations and compliance timeline
The new rules were originally scheduled to take effect in 2024 but were delayed due to requests from employers and plan sponsors who needed more time to prepare their systems. Plans must begin implementing these changes by January 1, 2026, with full compliance required by January 1, 2027.
This timeline creates important considerations for plan sponsors. Employers who don’t currently offer Roth 401(k) options may need to add them to accommodate affected participants. Without Roth capability, high-earning employees could lose access to catch-up contributions entirely.
Strategic implications for savers
While paying taxes upfront may seem disadvantageous, there are potential benefits to forced Roth contributions. Having a mix of pre-tax and post-tax retirement savings provides flexibility in retirement, allowing retirees to manage their tax liability by choosing which accounts to draw from based on their tax situation each year.
For workers still operating under current rules, maximizing contributions in 2025 could be particularly valuable. Those approaching the income threshold might consider timing strategies around bonuses or other compensation to optimize their contribution treatment.
Looking ahead and preparing for change
As these rules continue to evolve, both individuals and plan sponsors need to stay informed and prepare accordingly. The relatively small percentage of savers who maximize their contributions means many participants may not be directly affected, but for those who are, the impact on tax planning and retirement strategies could be substantial.
Employers should work closely with their plan administrators and advisors to ensure compliance and effective communication with affected employees. Meanwhile, high-earning participants should consider how these changes fit into their broader financial and tax planning strategies. The landscape of retirement savings continues to evolve and staying informed about these changes is crucial for optimizing your financial future.
Next steps
Navigate the way ahead with confidence. Our experienced pros can guide you on contributions, plan design, and compliance and communication to minimize your tax burden and maximize cash flow. Contact us today for a free consultation and start positioning your organization and people for success. As always, we’re here to help.
Additional content
You may also be interested in our employee benefit plan audit video series, available on-demand, or the most recent 401(k) plan management survey. We also offer a series of compensation and benefits studies – useful tools for benchmarking your organization against others in our region.
