Some retirement savers lose a key tax break under new IRS rule

Core Insights - The IRS has implemented a new rule affecting catch-up contributions to workplace retirement accounts, particularly for high-income earners aged 50 and above, starting in 2026 [1][2] - The change mandates that individuals earning $150,000 or more must make catch-up contributions to a Roth 401(k), eliminating the upfront tax deduction previously available for traditional 401(k) contributions [2][6] - This rule is permanent and based on the prior year's W-2 income, impacting retirement planning strategies for affected workers [5][6] Contribution Limits - In 2026, the contribution limit for 401(k) plans will increase to $24,500, up from $23,500 in 2025 [4] - Workers over 50 can make an additional catch-up contribution of $8,000 in 2026, an increase of $500 from the previous year [5] - Certain plans allow individuals aged 60 to 63 to contribute up to $11,250 as a catch-up contribution [5] Strategic Considerations - Affected workers may benefit from the tax-free earnings and withdrawals associated with Roth accounts after meeting the five-year aging rule [3] - Fidelity suggests that individuals reconsider their retirement savings strategies, potentially exploring health savings accounts (HSAs) or maximizing contributions to traditional and Roth IRAs [7][8][9] - Workers earning less than $150,000 remain unaffected by the new rule and can continue to make catch-up contributions to either traditional or Roth 401(k) accounts [6]