3 Things All Workers Aged 50 and Older Need to Know About Their 401(k)s in 2026

Starting in 2026, a major rule change will reshape how high-earning workers 50 and older save for retirement. The law now requires that if you earned over $145,000 in the prior year, your extra catch-up contributions must be made on an after-tax, Roth basis. This is a significant shift from the past, where those extra dollars were typically deducted from your taxable income upfront.

The immediate trade-off is clear. For the extra $8,000 catch-up contribution (the estimated limit for 2026), you will lose the immediate tax deduction. Instead of reducing your current taxable income, you must pay income taxes on that money before it goes into your retirement account. In other words, you're paying your tax bill now, when your income is high, rather than deferring it to retirement.

The logic behind this trade-off is about future tax-free growth. By contributing after-tax dollars to a Roth account, your savings will grow tax-free over decades. When you eventually withdraw the money in retirement, both the original contributions and the investment gains can be taken out completely tax-free. For someone in a high tax bracket now, the promise of tax-free withdrawals decades from now can be a powerful incentive.

So, the choice is a classic tax timing decision. You pay more taxes this year to get a potentially larger, tax-free pot later. This rule applies only to those who are both 50+ and hit the wage threshold, and it hinges on whether your employer's plan offers a Roth option. For affected workers, it's a reminder that retirement savings strategies must evolve with the rules.

Your Plan's Setup: The Critical "Roth Option" Check

The practical implication of the new rule is a hard stop for some. If your employer's 401(k) plan does not offer a Roth 401(k) option, then you simply cannot make the required after-tax catch-up contributions in 2026. The law is clear: High Earners cannot make catch-up contributions if the plan does not permit Roth contributions. For a worker aged 50+ with a prior-year income over $145,000, this means a potential loss of up to $8,000 in extra retirement savings for that year.

This is a common and costly oversight. Many employees assume their plan automatically includes Roth options, or they simply haven't checked. The rule change takes effect on January 1, 2026, and the window to verify your plan's setup is now. Employers have until the end of the 2026 plan year to amend their plans to add Roth features, but that doesn't help you in the short term. If your plan lacks the Roth option, you'll need to act before the year begins.

The good news is there's an alternative. If your employer's plan doesn't have the necessary Roth feature, you can still save that extra $8,000 in a Roth IRA. This is a crucial backup. A Roth IRA offers the same tax-free growth and withdrawals in retirement as a Roth 401(k), and it's available regardless of your income level. The key is to act now to confirm your plan's status and, if needed, open or fund a Roth IRA to protect your catch-up savings.

Three Actionable Steps to Protect Your Savings

The new rules mean you need to be proactive. Here are three specific steps to safeguard your retirement plan.

First, do a quick check of your finances and your plan's setup. Review your prior-year Social Security wages to see if you earned over $145,000. If you did, confirm immediately whether your employer's 401(k) plan offers a Roth 401(k) option. This is the make-or-break step. If the plan doesn't have Roth features, you will lose your ability to make the extra $8,000 catch-up contribution in 2026. The fix is simple: open or fund a Roth IRA to capture that savings. Don't wait until the year starts; verify now.

Second, if you're planning to leave your job, understand the "Rule of 55." This IRS provision lets you start taking penalty-free withdrawals from your current employer's 401(k) account if you leave that job in the year you turn 55 or older. It's a powerful tool for those who want to retire early. The key is timing: you must leave the job in the calendar year you hit that age. This rule applies to 401(k)s and similar plans, but not to IRAs. It gives you a way to access your savings without the usual 10% early-withdrawal penalty, though you'll still owe income taxes on the distributions.

Third, be aware of a new safety net for future costs. A recent rule change allows penalty-free withdrawals from retirement accounts to pay for insurance that covers daily living assistance like help with bathing or dressing. This is a direct response to the high cost of long-term care, which Medicare typically doesn't cover. While you can't use this for medical expenses yet, it's a potential option to help cover premiums for long-term care insurance. The bottom line is that you still pay income taxes on the money you take out, and you're reducing your retirement nest egg. But it's a new option to consider if you're planning for future care needs.