Retirement Retirement Planning

This New 401(k) Catch-Up Rule Could Backfire for Some Older Workers

And most don't even know what it is.

By Catherine Collins

Edited by Calista Headrick

Updated March 16, 2026

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As of 2026, several changes to 401(k) policies will take effect. The most significant change affects catch-up contributions, which many workers over age 50 use to increase their retirement plan balances before leaving the workforce.

Older workers, especially those who have relied on catch-up contributions to lower their taxable income in the past, need to know about this new change. While it won't affect all workers, those who meet specific criteria should be aware of it.

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The Secure 2.0 Act changes 401(k) policies

These policy changes result from the Secure 2.0 Act, which became law in 2022. Despite being passed in 2022, many of the changes it implemented were implemented on a slow rollout. These changes included automatic 401(k) enrollment increases, changes to the required minimum distribution age, and changes to contribution limits, among others.

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What high-earners need to know about catch-up contributions

The most significant change to catch-up contributions isn't that the limit is now higher. It's that those who earn above $150,000 a year must make catch-up contributions as Roth contributions. That means workers will need to make after-tax catch-up contributions to a Roth account, not pre-tax contributions to a traditional account.

For many years, high earners benefited from using catch-up contributions to lower their taxable income and save money during tax time. However, with this new rule in effect, they will no longer be able to do that. The silver lining is that when investing in a Roth account, retirees can withdraw their contributions tax-free once they become eligible.

What catch-up contribution income rules are based on

For those wondering whether the new catch-up contribution applies to them, your income is based on employer-provided W-2 Social Security income, not total household income. It's also not based on your adjusted gross income. One drawback, though, is that if your work plan does not offer Roth contributions, you won't be able to make catch-up contributions. This is according to the most recent regulations released on this policy update.

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Other new RMD rules affect retirement planning

There are additional rules that will affect older workers as they transition from working life to retirement. As part of the Secure Act 2.0 legislation, the required minimum distribution age is now 73 for individuals turning 72 on or after Jan. 1, 2023. In 2033, the RMD age will be 75. The positive news is that those nearing retirement will have more time for their nest egg to grow. However, workers are also required to withdraw a specific percentage of their 401(k) accounts in retirement. If their balances are larger, their initial withdrawals will be larger, which could trigger higher income taxes.

Other types of retirement accounts to consider

A 401(k) is not the only retirement plan option available to older workers. In fact, 401(k)s were never meant to be the sole source of income in retirement. Some other types of accounts to consider include IRAs and HSAs. Older workers can also consider adding other streams of income in retirement, such as starting a small business or investing in real estate. By having many different types of accounts and income streams as you near retirement, you'll have a more diversified approach to retirement income.

How some of these 401(k) changes could help older workers

These 401(k) changes can help older workers in several ways. First of all, employees over 50 can contribute an additional $8,000 to their retirement accounts in addition to the new contribution limit of $24,500. Employees age 61 to 63 can contribute an extra $11,250. And, even though high earners must make extra contributions as Roth contributions, there are tax benefits to having money in a Roth account during retirement.

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Why these changes could hurt older workers

The biggest drawback of this 401(k) policy change is that many high earners will not be able to lower their taxable income by making catch-up contributions. This might lead to higher tax bills, which could reduce the amount of money workers can invest in subsequent years.

How older workers can protect themselves

The best way workers can protect themselves and prepare for retirement is by staying up to date on 401(k) plan policy changes. Don't ignore emails from your employer, and if you have questions, don't be afraid to ask your human resources department. Getting help from a professional to make a retirement plan and tax strategy can help you determine whether or not you will be able to retire on time.

Bottom line

New 401(k) policy changes in 2026 may affect how older workers choose to contribute to their 401(k)s. Because these rules are new, it's a good idea to get professional advice to understand how they affect you and ensure you are on track for a stress-free retirement one day.

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