Retirement Retirement Planning

The 401(k) Rule That Matters Most Once You’re Within Five Years of Retirement

This could make or break your retirement.

By Catherine Collins

Edited by Laura Hohenstein

Updated Jan. 29, 2026

If you are within five years of retirement, it's more important than ever to pay attention to your 401(k) retirement plan. When you are young and just starting in your career, you have lots of time to make investment mistakes and learn from them. However, with only five years left before retirement, your margin for error narrows.

The one rule that is especially important to understand during this time is the catch-up contribution rule. As in 2026, the catch-up contribution rules have changed, and this could impact your overall retirement goals. Here's more information about what you need to know in the last few years before you stop working.

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Why are your last five years of work the most important

In your last five years of work, ideally, you are earning your highest income to date. At the same time, once you hit age 50, you can contribute even more to your 401(k). At age 60, that number increases again. This short window can allow you to top up your retirement accounts before you leave the workforce.

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The purpose of catch-up contributions

Catch-up contributions are exactly what they sound like: they enable workers to catch up on any 401(k) contributions they wish they had made earlier in their careers. Over the last few years, catch-up contributions have increased, especially for workers aged 60 to 63.

Now, those workers can contribute an extra $11,250 on top of the $24,500 they can put into a 401(k). This narrow three-year window is designed to help people invest as much as possible before retirement.

Why catch-up contributions matter

Once you stop working, you lose the ability to contribute to your 401(k). While you can invest in other assets, such as brokerage accounts and real estate, your 401(k) is designed for people who work. So, your catch-up contributions are the last opportunity you have to increase your retirement nest egg within your 401(k).

How your contributions impact your retirement date

The amount of contributions you make throughout your working life helps determine whether you can retire at the age you want to. Your contributions and how you handle withdrawing them determine how long your savings can last.

The funds you invest in and the breakdown of your portfolio determine how much flexibility you have to withstand market fluctuations, too. Therefore, taking advantage of your catch-up contributions can actually make the difference between you retiring on time or working a few more years.

Tax changes to catch-up contributions

Starting in 2026, high-income earners who make above $150,000 a year will have to make their catch-up contributions into a Roth account, rather than a traditional 401(k) account.

There are pros and cons to this new rule. The pro is that putting catch-up contributions into a Roth account means you can withdraw your earnings tax-free in retirement, so long as you meet specific qualifications. The downside is that many high earners use catch-up contributions to reduce their taxable income. With those contributions now going into a Roth account, they cannot lower your taxable income in the current year.

If you have questions about this new rule, ask your human resources department, a qualified financial planner, or an accountant to ensure you are following the rules and planning your taxes appropriately.

Why you shouldn't ignore this rule

Currently, prices on everyday items have gone up, from grocery store prices to gas to household maintenance costs. For those reasons, many people might ignore catch-up contributions in favor of using excess cash to pay for everyday expenses.

However, ignoring this rule could prevent people from taking advantage of their last real opportunity to top up their 401(k) accounts. So, if you can adjust your spending and budgets to accommodate catch-up contributions, consider it.

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Where to find 401(k) help if you need it

If the idea of retiring in five years feels completely overwhelming, it's okay to seek help from a Certified Financial Planner. A financial planner can review your current retirement savings and let you know whether you are actually on track to retire in five years.

Sometimes, financial planners can coordinate with accountants to maximize your tax strategy and make it as advantageous as possible for you. Some companies also offer support through their human resources department. All that to say, if you have questions or need help, don't be shy to ask. These last few years of work are important for setting up for success in retirement.

Bottom line

Ultimately, if you want to retire comfortably, it's important to pay attention to the new 401(k) rules that affect catch-up contributions. These new rules can impact the amount of money you're able to invest before retirement, and they can also affect how much you pay in taxes now and in the future. Sometimes, employees overlook catch-up contributions, but they can be an important part of your retirement planning strategy.

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