The IRS Just Gave Retirement Savers a $35,750 Opportunity — With One Expensive Catch

Retirement savers approaching the end of their careers face a difficult balancing act. They’re trying to build enough savings to support decades without a paycheck while inflation, healthcare costs, and everyday expenses compete for their remaining income. Every dollar they can put away matters, especially when time is running short.

Fortunately, the IRS is giving some older workers an opportunity to accelerate their savings. Under rules established by the SECURE 2.0 Act, eligible employees can contribute as much as $35,750 to their workplace retirement accounts in 2026. That’s thousands more than most workers can save.

But there’s a tax catch that could cost higher earners thousands of dollars upfront.

A $35,750 Retirement Savings Opportunity

The IRS increased the standard employee 401(k) contribution limit to $24,500 for 2026, up from $23,500 last year. Workers ages 50 and older can contribute another $8,000.

However, a special provision allows workers turning 60 through 63 during the year to make an enhanced catch-up contribution of $11,250.

Here’s how the contribution limits compare:

That gives eligible workers an additional $3,250 annually compared with the regular catch-up allowance.

The enhanced provision began in 2025 and applies to most 401(k), 403(b), governmental 457(b), and Thrift Savings Plans that permit these contributions.

For workers trying to close a retirement savings shortfall, the four-year window offers a valuable opportunity to increase their nest egg before leaving the workforce.

The Expensive Tax Catch

Here’s where the IRS gives with one hand and takes away an immediate tax benefit with the other.

Beginning in 2026, workers whose 2025 Social Security and Medicare wages from their employer exceeded $150,000 generally must make their catch-up contributions to a Roth account rather than a traditional pretax 401(k).

That changes when they pay income taxes. Traditional 401(k) contributions reduce taxable income today, with withdrawals generally taxed in retirement. Roth contributions use after-tax dollars, but qualified withdrawals are tax-free.

Consider a 62-year-old worker in the 24% federal income tax bracket making the maximum $11,250 catch-up contribution. Under the traditional pretax arrangement, that contribution could reduce the worker’s current federal income tax by $2,700. Under the mandatory Roth arrangement, that immediate tax savings disappears.

That’s $2,700 in additional current-year federal income taxes, assuming the entire contribution would otherwise have been deductible at the 24% marginal rate.

Granted, the money isn’t necessarily lost. Qualified Roth withdrawals escape federal income taxes, and tax-free investment growth can make Roth accounts valuable. But for someone trying to maximize savings while managing today’s household bills, the upfront tax difference is real.

Making the Most of the Opportunity

The important difference is that the Roth requirement applies to catch-up contributions, not necessarily the entire $35,750. Eligible higher earners can generally still contribute the standard $24,500 on a pretax basis, while directing their $11,250 catch-up contribution into Roth savings. Workers below the $150,000 prior-year wage threshold can generally continue making pretax catch-up contributions if their plans permit them.

And the opportunity shouldn’t be overlooked simply because retirement seems close. Someone contributing an extra $3,250 annually for four years could accumulate $13,000 in additional principal before investment returns.

That extra cushion could help offset future expenses or potential Social Security benefit reductions.

Key Takeaway

In short, the IRS has opened a valuable retirement savings window, but higher earners need to understand the new tax rules before increasing contributions.

The $35,750 allowance can help older workers strengthen their retirement finances. However, the mandatory Roth catch-up requirement means some will pay thousands more in income taxes today in exchange for potential tax savings later.

Before the year ends, check your employer’s retirement plan, confirm your eligibility, and calculate how the Roth requirement affects your take-home pay. The opportunity is worth considering, but the tax bill shouldn’t come as a surprise.

Contact [email protected] for any questions or corrections.