2026 401k Contribution Limits: New Retirement Saving Caps

In 2026, the Internal Revenue Service updated the 2026 401k contribution limits, allowing savers to contribute more to their retirement accounts than the previous year. These changes include higher elective deferral limits and increased catch‑up contributions for older workers, giving Americans a chance to boost tax‑advantaged retirement savings.

Higher Elective Deferral Limit

For the 2026 tax year, the maximum amount employees can contribute to a 401(k) plan through regular elective deferrals is $24,500, up from the 2025 limit of $23,500. This increase allows workers to set aside more of their income on a tax‑deferred or Roth after‑tax basis, depending on plan options.([turn0search24])

Increased Catch‑Up Contribution for 50+

Workers aged 50 and older can make additional catch‑up contributions beyond the regular limit. In 2026, this catch‑up limit rises to $8,000, up from $7,500 in 2025. Participants aged 60 to 63 may contribute even more under the “super catch‑up” provision, with a limit of $11,250.([turn0search18][turn0search20])

Total Annual Contribution Ceiling

Beyond individual elective deferrals and catch‑up contributions, the total amount that can be contributed to a 401(k) account in 2026 — including employer matching and profit‑sharing — increases as well. The overall defined contribution limit for many plans rises to $72,000, up from $70,000 the previous year.([turn0search39])

Roth Catch‑Up Rule for High Earners

Starting in 2026, if a saver’s income exceeds a certain threshold — generally $150,000 in FICA wages the year before — catch‑up contributions must be designated as Roth (after‑tax) contributions instead of traditional pre‑tax. This change affects the timing of tax benefits but can offer tax‑free withdrawals in retirement under qualifying rules.([turn0search21])

Why These Changes Matter

Increasing 401(k) contribution limits gives workers more room to save for retirement, which is especially important given rising life expectancies and longer working years. Higher limits help those nearing retirement age catch up faster on savings, while the Roth catch‑up requirement prompts savers to rethink tax planning strategies.

Conclusion

The 2026 401k contribution limits reflect meaningful increases in how much Americans can save for retirement through employer plans. Understanding the updated limits and how to apply catch‑up contributions can help savers optimize their retirement strategies and take full advantage of tax‑advantaged accounts in 2026 and beyond.

2026 401k Catch-Up Tax Change: What High Earners Must Know

Starting in 2026, a major tax rule change for retirement savings affects older workers who make catch-up contributions to their employer-sponsored 401(k) plans. Under this new guidance, high-income participants must direct their catch-up contributions into Roth 401(k) accounts instead of traditional pre-tax accounts, eliminating the upfront tax deduction they once enjoyed.

Who Is Affected by the Change

The 2026 401k catch-up tax change applies to workers aged 50 and older whose prior year income from employment exceeds a certain threshold, typically around $145,000 to $150,000 adjusted for inflation. These high earners must make catch-up contributions on an after-tax basis, meaning the contributions are taxed now rather than reducing taxable income in the current year.

How Catch-Up Contributions Worked Before

Before this change, older workers could make additional catch-up contributions to their 401(k) beyond the standard annual limit and reduce their taxable income for the current year. For example, in 2026 workers aged 50 and older can contribute an extra amount on top of the regular cap to enhance retirement savings, and in some cases those aged 60 to 63 have an even higher “super catch-up” limit. Under earlier rules, these contributions could be made pre-tax, lowering this year’s tax bill.

Shift to Roth Catch-Up Contributions

Under the new rule, eligible catch-up contributions for high earners must be made into a Roth 401(k), meaning they are funded with after-tax dollars. This removes the immediate tax benefit that traditional pre-tax catch-up contributions once provided. However, Roth contributions grow tax-free, and qualified withdrawals in retirement are not taxed, which can be beneficial in later years.

Plan Options and Consent Issues

Some employer plans automatically apply the Roth catch-up rule for affected employees, while others require workers to provide consent. If an employee fails to opt into Roth catch-up contributions in a plan that requires consent, their catch-up contributions could be halted. Workers should review plan options and preferences with their employer or plan administrator to ensure continuity of contributions.

Tax Planning and Retirement Impact

Although high earners lose the upfront tax deduction for catch-up contributions, making those contributions on a Roth basis may still offer long-term advantages. Roth funds compound tax-free and do not require taxable distributions later. For some savers, especially those expecting higher tax rates in retirement, this shift can improve overall tax efficiency and retirement income planning.

Conclusion

The 2026 401k catch-up tax change marks a significant shift for higher-income, older workers saving for retirement. By mandating Roth catch-up contributions, the rule alters the timing of tax benefits and requires careful planning. Understanding this change and adjusting contribution strategies can help individuals make informed decisions about retirement savings and minimize unexpected tax impacts.

Introduction

If you inherited a retirement account, pay close attention: the inherited IRA changes 2025 are now in effect, and missing the updated requirements could bring serious tax penalties. These changes affect how heirs must withdraw funds, how fast the account must be emptied, and how distribution choices can impact taxes. In this guide, we’ll walk you through what’s new, who’s affected, and how to handle an inherited IRA to avoid costly mistakes.

What’s Changing in 2025

• Since 2020, many non-spouse beneficiaries of inherited IRAs have been under a “10-year rule,” meaning the account must be emptied within 10 years of the original owner’s death.

• Starting in 2025, if the original IRA owner had already reached their required minimum distribution (RMD) age before death, beneficiaries must also take annual required minimum distributions (RMDs) during those 10 years. Missing those yearly withdrawals can trigger a penalty.

• The penalty for missed RMDs may be steep — making it crucial for heirs to track and withdraw correctly starting 2025.

Who Is Affected

• Most non-spouse beneficiaries, such as adult children inheriting a parent’s IRA.

• Beneficiaries of accounts from owners who had already started taking RMDs before death.

• Beneficiaries who previously planned to “stretch” distributions over their lifetime — that option is mostly gone now.

Exceptions: Some beneficiaries remain exempt from the new RMD rule — for example, surviving spouses, minor children of the original owner, disabled or chronically ill individuals, and beneficiaries within a certain age range.

Risks & Common Mistakes Under the New Rules

• Missing annual RMDs — since 2025 the IRS enforces penalties if you skip required withdrawals.

• Waiting until the end of 10 years to withdraw — this can push the entire distribution into one tax year, possibly bumping you into a higher tax bracket.

• Lack of planning for estate or beneficiary structure — failing to update beneficiary designations or ignore the new rules could cost heirs significantly.

Smart Withdrawal Strategies for 2025

• Plan for annual withdrawals (RMDs) if required — don’t wait until year 10.

• Spread withdrawals over multiple years, especially if income is expected to fluctuate — this can smooth out taxable income.

• Work with a tax advisor or CPA, especially if you inherit multiple accounts or plan other retirement moves (like conversions).

• Check beneficiary designations and timing — make sure you know whether the original owner had started RMDs before passing.

• Avoid large lump-sum withdrawals at the end — it may create a tax spike and reduce flexibility.

What You Should Do First If You Inherited an IRA

1. Confirm when the original owner passed and whether they started RMDs before death.

2. Contact the account custodian to request required withdrawal schedules for 2025 and beyond.

3. Run a multi-year tax projection to estimate the impact of withdrawals.

4. Consult a financial or tax professional to set up the best plan — especially if you have other taxable income or retirement accounts.

Final Thoughts

The 2025 changes to inherited IRAs represent a significant shift in retirement and estate planning. For heirs, it’s critical to understand the new distribution and penalty rules — and act promptly. With careful planning, smart withdrawal strategies, and perhaps professional advice, you can secure your inheritance and avoid unnecessary tax burdens.

If you inherited an IRA, now is the time to review your account and plan your next steps carefully.

Introduction

Starting 2025, several new tax-deduction opportunities are catching the attention of many taxpayers — especially those earning tips or overtime, or considering a new car loan. These changes could mean real savings for the right people. In this blog, we break down what’s new, who stands to benefit, and what to watch out for.

What’s New in the 2025 Tax Landscape

Tips & Overtime — More Than Just Extra Pay

Under the new law, workers who earn tips or overtime may qualify for deductions on a portion of that income:

• For overtime: eligible amounts beyond the regular rate-of-pay may be deductible — up to defined limits.

• For tipped workers: qualified tips may also be deductible under certain conditions.

That means extra pay from late nights or busy weekends could come with extra savings — as long as you meet eligibility requirements.

Car-Loan Interest Break — Buying a New Ride Might Save on Taxes

Another part of the law aims to help buyers of eligible vehicles. If you took out a loan for a qualified, newly purchased car (assembled in the U.S.), you may be able to deduct some or even all of the interest you pay — potentially reducing your taxable income for 2025–2028.

But there are conditions. Factors like income level, vehicle eligibility (new cars, U.S.-assembled), and loan terms matter before you can claim this break.

Who Benefits — And Who Might Not

These deductions are promising — but they don’t help everyone equally. Here’s when they make sense:

• Middle to upper-middle income earners — People whose incomes are high enough to pay taxes, but not so high that their deductions are phased out. If your income is too low, deductions may not offer much benefit.

• Employees with consistent overtime or tips — If your earnings frequently include overtime or tips, the deductions can add up.

• Buyers of a new, eligible vehicle with a loan — Those planning to purchase a U.S.-assembled car could benefit from the car-loan interest deduction — depending on loan size, interest paid, and income limits.

On the flip side: low-income workers, or those with inconsistent extra pay, might see limited benefits; high-income earners may hit phase-out thresholds, reducing or eliminating the deductions.

What to Watch Out For — Before You File

• Temporary provisions — Many of these deductions are valid only for a few years (e.g. 2025–2028). So timing matters.

• Reporting accuracy matters — For overtime and tips deductions: pay must be properly reported (on W-2, 1099 or other statements) for eligibility.

• Income limits and phase-outs apply — Deductions phase out at certain income thresholds, which affects benefit amounts.

• Car eligibility is strict — Deductions for car-loan interest apply only to certain vehicles (e.g. U.S.-assembled, new, personal-use, below certain weight), and loan interest may need to meet specific criteria.

What You Should Do Now — A Quick Action Plan

1. Check your income level and pay structure: If you earn tips or overtime regularly, run a quick estimate to see if deductions help.

2. If buying a car — check eligibility: Make sure the vehicle and loan qualify before counting on tax benefits.

3. Keep detailed records and documentation: Pay stubs, loan paperwork, W-2s/1099s — save everything relevant.

4. Crunch the numbers — maybe with a tax pro: Because deductions phase out and have caveats, it’s smart to model potential savings vs. income level and loan details.

5. Plan early: Since many deductions are temporary (2025–2028), planning now could help maximize benefits while they last.

Final Thoughts

The 2025 tax law changes around overtime, tips, and auto-loans could offer meaningful financial relief to many Americans — especially those working hourly, earning tips, or financing a new vehicle. But they aren’t guaranteed windfalls. Their value depends heavily on your income, job type, and how carefully you document everything.

If you meet the conditions and plan carefully, these deductions might help you keep more of what you earn — and make major expenses like a car purchase more tax-efficient.