A number of changes are coming to 401(k) plans in 2026, including higher contribution limits for all account holders. The amount individuals can contribute to their 401(k) plans will rise to $24,500 in 2026 from $23,500 for 2025, according to the IRS. Trending Now: Suze Orman Says If You’re Doing This, You’re ‘Making the Biggest Mistake in Life’ Try This: 6 Things You Must Do When Your Savings Reach $50,000 Another change, included in the Secure 2.0 Act of 2022, targets high earners over 50 only. This ch ...

Core Viewpoint - Suze Orman advocates for the Roth 401(k) as the optimal retirement savings account due to its tax advantages during retirement [3][7][8] Group 1: Advantages of Roth 401(k) - Roth 401(k) accounts provide tax-free withdrawals in retirement, which do not count as taxable income, thus avoiding potential taxes on Social Security benefits and higher Medicare premiums [7] - Contribution limits for Roth 401(k) are higher than those for Roth IRAs, allowing for greater tax-advantaged retirement savings [7] - The account allows individuals to skip immediate tax savings in favor of more significant tax savings later in life [5][6] Group 2: Comparison with Traditional 401(k) - Traditional 401(k) contributions reduce taxable income in the year of contribution, providing immediate tax savings [4] - In contrast, Roth 401(k) contributions are made with after-tax money, meaning no immediate tax deduction is available [5] - The trade-off is that while traditional 401(k) offers upfront tax benefits, Roth 401(k) offers long-term tax-free growth and withdrawals [5][6]

Core Insights - The Vanguard report indicates that 14% of workplace savers reached the maximum contribution limit in 2024, with 16% of eligible individuals making catch-up contributions and 18% utilizing Roth features, primarily among those earning over $150,000 [1][4]. Group 1: Changes in Retirement Contributions - A new "super catch-up" provision for individuals aged 60 to 63 allows contributions up to 150% of the regular catch-up amount, with the 2025 statutory employee contribution capped at $23,500 and catch-up contributions for those 50+ at $7,500, likely increasing in 2026 [4]. - High earners will be required to pay taxes on catch-up contributions and deposit them into Roth accounts, as mandated by new IRS guidance effective in 2026 [5]. Group 2: Tax Implications and Behavioral Changes - The tax burden for high earners making full super catch-up contributions could be approximately $4,000 upfront for those in the 35% tax bracket [3]. - The perception of future tax rates has shifted, with many wealthy individuals now believing they may face higher tax rates in retirement, contrary to previous assumptions [7]. - The new tax rules may discourage some individuals from making catch-up contributions, as the tax advantages of traditional 401(k) plans are diminished [8][10]. Group 3: Impact on Retirement Readiness - The ability to make catch-up contributions is primarily influenced by salary levels, with significant contributions required from those in the super catch-up zone, which may deter participation due to competing financial obligations [11]. - There is skepticism regarding widespread adoption of super catch-up contributions, as individuals often prioritize immediate financial needs over increased retirement savings [12].