Are you ready for a major shake-up in your retirement savings? Starting next month, significant changes to 401(k) rules are set to impact workers aged 50 and over, and it could mean a serious juggling act for high earners looking to maximize their savings. But here's where it gets controversial: these changes, part of the SECURE 2.0 Act of 2022, aim to boost tax revenues by shifting how and where certain contributions are made. Let’s break it down in a way that’s easy to understand, even if you’re just starting to think about retirement.
First, the good news: older workers will have the opportunity to save more for retirement through increased “catch-up” contribution limits. For example, in 2026, the standard pre-tax 401(k) contribution limit will rise to $24,500 from $23,500 this year, thanks to a cost-of-living adjustment. But for those in their 50s, the catch-up limit jumps to $32,500—an extra $8,000 on top of the standard limit. And for those aged 60 to 63, the limit climbs even higher to $35,750, including a “super catch-up” amount of $11,250.
But here’s the twist: if you earn $150,000 or more, you won’t be able to put those catch-up contributions into your traditional tax-deferred 401(k) plan. Instead, the IRS requires you to funnel that money into a Roth 401(k), where contributions are taxed upfront but withdrawals in retirement are tax-free. This is a stark contrast to traditional 401(k)s, where contributions are made pre-tax and withdrawals are taxed later. Is this a fair move, or does it unfairly penalize high earners? Let us know what you think in the comments.
Robert Canterbury, a senior wealth adviser at Dopkins Wealth Management, points out a potential snag: many smaller employers and nonprofits don’t offer Roth 401(k) options alongside traditional plans. However, he assures that adding this option is a relatively simple process. “It’s just a quick amendment to the plan,” Canterbury explains. He encourages employees to ask their HR departments about adding this option now, as the new rules take effect in January. “It’s an opportune time,” he adds, noting that it typically takes several months for workers to reach these catch-up limits anyway.
And this is the part most people miss: while plan administrators can make these changes, payroll companies also need to be in the loop to avoid over-contributions. Canterbury emphasizes, “Employers need to be proactive with their payroll providers to ensure compliance.”
Guy Maddalone, CEO of GTM Payroll & HR, confirms that his firm is ahead of the curve. “Our technology will notify employees when they hit their deferral limit and automatically shift catch-up contributions to their Roth account, if available,” he told the Times Union. “We’re working closely with clients to make this transition seamless.”
So, what does this mean for you? If you’re 50 or older, especially if you’re a high earner, now’s the time to review your retirement strategy. Are these changes a step in the right direction, or do they add unnecessary complexity? Share your thoughts below—we’d love to hear your perspective!
