WEBVTT 00:00:00.000 --> 00:00:30.845 If you're going to be 50 or older in 2026, there are some changes to how you can save to your four zero one ks plan that you need to know about. And these are not just small changes. In fact, this could result in thousands of dollars of additional taxes in 2026 and beyond. So today I'm going to share with you the updated four zero one ks and IRA contribution limits for 2026. The important changes to know about that go along with that regarding your four zero one ks if you are 50 or older and a few specific nuances about these new rules that you should be aware of. 00:00:31.100 --> 00:01:09.620 But first, welcome back to another episode of Retirement Answers. If you're new here, my name is Jacob Duke. I'm a certified financial planner and the owner of a retirement planning firm that helps people just like you plan smarter and retire better. So let's first jump in by getting the updated contribution amounts here for 2026, so you can make sure that you update your paycheck withholdings accordingly. All right, so in 2026, for your employer plans, four zero one ks, four zero three B, four fifty seven, the normal contribution limit has been increased to $24,500 So if you are any age 50 or over 50, your normal contribution limit is 24,500. 00:01:09.700 --> 00:02:11.625 For those of you who are 50 or older, your additional, your catch up contribution is $8,000 So, a total of 32,500 is how much you can contribute if you are 50 or older by the end of this calendar year 2026. Now, if you are between ages 60 and 63 by the end of the calendar year, so if you turn 60, 61, 62, or 63 here in 2026, you actually have an increased catch up contribution compared to anyone else who's above 50. Kinda It's like this little donut hole thing where if you're in the 60 to 63 range, you actually get to contribute an additional $11,250 as your catch up rather than the 8,000. So you get an extra $3,250 to work with on your catch up if you would be between the ages of 60 and 63 by the end of twenty twenty six. So that would actually bump your contribution limits up to $35,750 So you get that extra super catch up if you are between ages 60 and 63. 00:02:11.625 --> 00:02:31.890 That's what you need to know in terms of your retirement plan for your employer. Those are the new contribution limits. Now, really quickly, I wanna talk about traditional IRAs and Roth IRAs, and kind of give you just the increases there for 2026 as well. And then we're going to come back to the employer plans. I want to tell you about the specific rule change that applies in 2026 if you are 50 or older for your catch ups. 00:02:31.890 --> 00:03:09.865 For your traditional IRA and your Roth IRA contributions, the new normal contribution limit is $7,500 and if you are 50 or older, but for both Roth and traditional, you get another $1,100 on top of that. So a total of $8,600 is how much you can contribute to a Roth IRA or a traditional IRA if you are 50 or older. Now, are different rules around eligibility. I'm not gonna get into that today. I'm actually gonna do that in the next episode where I break down all of the new important numbers here in 2026, but there are eligibility requirements from an income standpoint for Roth IRAs, but then also traditional IRA deductibility. 00:03:09.865 --> 00:03:53.450 So I wanna tune into the next episode where I talk more about that. But if we go back to the employer four zero one ks's, four zero three b, four fifty seven, and we talk specifically about the catch ups. Anyone who's 50 or older, there's a new rule here in 2026 that was actually supposed to be instituted two years ago, but it's been delayed because so many plans have been having to update their plan documents to meet these requirements under the new rules. But if you make too much money, here's a new rule. If you make too much money and you're trying to do the catch up of either 8,000 or the 11,250, depending on your age, we'd actually have to make that to the Roth side of your employer plan rather than the tax deferred or traditional side. 00:03:53.450 --> 00:04:20.395 So what's happening is you're being forced to contribute to the Roth side of your plan if you make too much money. I'm going to tell you how much money that is here in just a moment and kind of the nuance that comes with that. But that is huge, right? Because if you were obviously maxing out your four zero one ks, you're saving big chunks of money in general, you're saving at least $32,500 if you're 50 or older. And most of the time when you're at those ages, you're probably in your highest income earning years. 00:04:20.395 --> 00:05:09.675 So being able to make that catch up contribution to the tax deferred side of your plan, obviously helps you lower your taxes every year while you're earning a higher salary and deferring those into the future whenever you might get to retirement and have a lower income tax or a lower effective tax rate overall. You're being forced to pay taxes on your catch up contributions, whether you want to or not, because you make too much money. Now, the question in your mind is like, Jacob, how much can I make without having to do that? In 2026, the income limit is $150,000 So if you made $150,000 or more in wages in 2025, you would then have to make any catch up contributions to the Roth side of your plan. So you'd have to pay the taxes to put the money to the Roth side. 00:05:10.235 --> 00:05:30.580 So that's the new rule. That's the big change. That's the one that's gonna catch a lot of you off guard, right? And I'm gonna give you a couple tips here in just a moment to help make this a little smoother of a transition for you, if you do wanna continue doing the catch up. But what the nuance here to know about is this, is that this applies only to your FICA wages. 00:05:30.580 --> 00:05:47.735 Right? So whatever wages show up in box three of your w two. Okay, so you get your W two from your employer every year, assuming you're a W two worker. Right? Box three of that form that you're gonna get here come tax time from your employer, so you can file your taxes. 00:05:47.735 --> 00:06:26.880 If that is above $150,000, technically you are a high earner for 2026, and then you would be required to make any catch up contributions to the Roth side of your plan. Okay, so that's the number and that's how it works. It doesn't necessarily apply to ten ninety nine income, but if you're a normal employee and you made more than 150,000 of wages, FICA wages in 2025, here in 2026, you have to make sure that your catch up contributions go into the Roth side. Now, here's another nuance about this. Okay, so you have one nuance being the type of income you're actually earning, not how much total income you have to pay taxes on. 00:06:27.120 --> 00:06:53.880 So that's why it's important to pay attention to what's in box three on your w two that you're gonna get. It only applies to your current plan, the employer of your current plan. So hear me out here. If you change jobs mid year in 2025, you might not have to follow this rule, this new rule, even if you make $200,000 here in 2026, or even if you made $200,000 last year. Here's why. 00:06:53.880 --> 00:07:21.330 The plan that you're currently enrolled in, that is the plan that had to have paid you, the employer of that plan had to have paid you $150,000 in wages, again, in box three on your W-two, that company had to pay you 150 last year, because it's all plan based. Okay, it's tied to the plan. It's not necessarily tied to your total income. All right. So let's say you made $200,000 last year, W-two wages, but you split that evenly. 00:07:21.410 --> 00:07:56.895 You worked the first half of the year for a different company, and then July 1, you moved over to a different company and you're still employed at that new company today and you will be in 2026. Well, you earned a $100,000 under this example, under the old company, and then you earned a $100,000 in the back half of 2025 under the new company. Well, your W-two from the new company will not be above $150,000, right? Because you only earned a 100. So that's a scenario where you earned more than 150 last year, but your current employer and the plan that you're currently enrolled in, technically that employer did not pay you 150 last year, they only paid you a 100. 00:07:57.055 --> 00:08:34.635 So even though you earned 200,000 last year, you would not have to be required to follow this new Roth, this forced catch up to the Roth provision because your W-two wages from your current employer did not go over 150. Okay? So that's another nuance here is your wages technically are tied to the current employer and what you got paid from them last year. Same thing applies like if you move mid year to a new job under this new rule, and you've contributed, you know, some of your, you know, annual contribution to your old plan. Let's say you move in March 2026 to a new job. 00:08:34.795 --> 00:08:59.715 Well, once you get to the new job in March 2026, technically your new employer didn't pay you anything last year. Right? So you wouldn't have to follow this Roth provision either, because they didn't pay you, you didn't have any wages, they don't have a W-two or anything for you on that current employer's plan. So there there are nuances like that within this that you've got to be aware of. It's not just did I make a $150,000 or more total last year, who paid me that $1.50? 00:08:59.715 --> 00:09:21.245 That's a question you got to ask. Obviously, if you're in the same position and you made more than $1.50 last year, then then yeah, you'd have to follow this new Roth four zero one ks catch up provision. But it's important to understand the nuances, okay? So this is essentially a forced taxation on your catch up contributions. If you make too much money above that 150 and you're 50 or older. 00:09:21.245 --> 00:09:56.885 Obviously, your age is 60 to 63 and you're able to do the 11,250, that would apply to that amount, right? So you have to put all of that to Roth assuming you are above the income limit here. So this is new and one of the questions in your mind might be, well, Jacob, what if my employer doesn't have a Roth four zero one ks option? Well, they most likely do now. That's kind of why there's been a two year delay on actually enforcing this rule ever since Secure Act 2.0 is because most plans, you know, we'll say 70% of plans actually had Roth provisions, but the other 30% didn't. 00:09:57.125 --> 00:10:30.895 And so it allowed that two year timeframe, that twenty four month period of time for the actual plan to get that Roth side added on to it. So you could have this for your 50 plus people that were making catch ups. And the hard part with this is, you know, if your employer didn't update their plan and they don't have a Roth side of the four zero one ks or the four zero three b, well, you might not be able to contribute your catch up because of that. Okay, so if they don't have the Roth option, it doesn't allow you just to, you know, to make the traditional side, you know, contribution for your catch up this year. It just means you can't make the catch up contribution at all. 00:10:30.975 --> 00:10:49.315 Because by rule and by law, you technically should be making that to a Roth side of the four zero one ks plan. If it doesn't have it available, then you can't do it, okay? There's a lot of little things in here like that. I would double check on all of this with your current plan to see, number one, do I qualify for this? Do I have to follow these new provisions? 00:10:49.315 --> 00:11:02.640 Do I earn too much money? Then the next question is, do I have Roth available in my four zero one ks? Is that something that my plan has provided me? And if so, great. Now the next question is, how do I actually structure my savings? 00:11:02.640 --> 00:11:23.495 Like how do I break that down? It's kind of been different, right? Assuming that you've been contributing all of your savings to the tax deferred side because you make a bunch of money and you're trying to, you know, not pay as much tax now, because you know you can pay lower taxes in retirement when you take the money out. So the question is now is like, well, do I just fill up the tax deferred side first and then do my catch up later? Or how do I do that? 00:11:23.495 --> 00:11:50.185 Well, really, it depends on your plan. Sometimes some, you know, plans will make you fill up your normal contribution first and then you fill up your additional catch up. And then some it allows you to actually, I guess, do both at once in one quote, big bucket. So it depends on how your plan set up, so you gotta look at it. But if yours is one of the plans that's like, hey, you know, if you're 50 plus, you know, you get a total of what 32,500, so that's just how much we give you room. 00:11:50.185 --> 00:12:31.030 It's just kind of one big bucket in terms of how it's like accounted for as you're saving. Then what you can maybe do is, is you can start splitting how much of your paycheck deductions are going to tax deferred and how much are going to Roth. Okay, if you know you're gonna be forced to do the Roth side on the catch up and you're trying to max out your four zero one ks, well, you have 32,500 a room. I'm not gonna include the folks of you who are the 60 to 63 bunch, who have the $11,002.50. I'm just going to use the normal $8,000 catch up here, but 32,500, if that's how much you can contribute, maybe you can start splitting your tax deferred versus Roth, you know, deductions out of your paycheck as a percentage to one side versus the other. 00:12:31.030 --> 00:13:27.380 So the way that that math would work out is if you have 8,000 of catch up out of your 32,500 total eligibility, then 24.6% technically is how much that 8,000 is out of the total. So if we just kind of round that up to 25%, one out of every four dollars saved, if you would be required to actually do the Roth side, one out of every four dollars saved your four zero one ks needs to go to the Roth, and the other three would need to go to the tax deferred, assuming you wanna do the tax deferred for your normal contribution limit. So maybe from the start here in 2026, again, depending on how your plan is structured and how you actually have to save into it, If you save three out of every $4 to tax deferred, and if you save one out of every $4 over to your Roth side of your four zero one k, that would help you kind of max out your four zero one k appropriately, so that you don't mess up on either side, and you actually get all of your your normal contribution to the traditional and then all of your catch up to the Roth. 00:13:27.460 --> 00:14:03.650 And so maybe that's an idea for you. Number one, you've got to evaluate how does your plan actually structure the savings and what's the the actual workflow there? How does that happen truly? Does it fill up all the first one first, all the normal contribution first, and then fill up your catch up next, or is it kind of all in one at one time based on your age? That's the first thing is you gotta know that, and then you can say, well, based on how much I'm saving to max out my total for the year, 25% of that amount, of that percentage technically is what I can put into the Roth side, the other 75% would go into the tax deferred to account for, you know, the normal contribution plus the catch up. 00:14:03.810 --> 00:14:29.190 Now, that's if you want to actually continue saving your catch up contributions to the Roth. Because the thought that might go through your mind is like, Jacob, if I'm having to pay taxes, because I'm 50 plus making more than one fifty. If I have to pay taxes to save my catch up contributions of $8,000 or $11,002.50, whichever applies to you, you know, should I keep doing that? Should I save it all to the Roth? Or is there a benefit to just saving more cash? 00:14:29.190 --> 00:15:05.700 Or should I save it to my brokerage account? And, you know, this is gonna be a case by case basis. It's gonna be nuanced for each person based on your situation, kind of your future needs. But maybe a thought for you is this, is what if you're really low on your brokerage account, or if you don't have that tax diversification that I always like to talk about and how important that is as you get into retirement. If you don't have any after tax money outside of your four zero one ks, like cash brokerage, anything that's not in a retirement account, maybe think about not contributing the catch up to the four zero one ks and saving that money over to your brokerage account, if that's all you're saving. 00:15:05.700 --> 00:15:36.235 If you're only saving your max to your four zero one ks, maybe it's beneficial to long term anyway, get more money in that brokerage account. Now, upfront here this year, your tax bill would end up being the same, right? Because you would, you know, have to pay taxes on the 8,000 put it into the Roth, you'd have to pay 8,000 taxes on the 8,000 to put it into your brokerage account. So your tax situation year to year would end up being the same because again, you're being forced to pay the taxes on the catch up, assuming this rule will apply to you. So this thought is like, hey, well, what if actually saving to the Roth isn't the right thing anyway? 00:15:36.235 --> 00:15:55.650 Maybe I should need to build up my cash reserves for, you know, the first few years of retirement to have something to go on. Or maybe I've got a big car purchase coming up or a home remodel or I finally want to pay off this house, right? Like those are the types of things you'd be asking yourself if this rule applies to you. So I wanted to make you aware of this change. Hopefully you knew about this before. 00:15:55.650 --> 00:16:13.805 If you didn't, here's your chance to learn about it, right? But I want you to understand what's going on here so you can make better planning decisions for you and your family and kind of your future retirement needs and projections. But if this was news to you, maybe it's news to somebody else. So share it with a friend, somebody who could benefit from it. If they are 50, maybe we need to check on this. 00:16:14.170 --> 00:16:38.975 And one other thing that I wanted to share with you is that if you want a copy of the new important numbers data sheet, I talk about this all the time. In fact, that's what I'm looking at here as I'm talking to you is if you want a copy of that, great, you can grab one, it's completely free. There's gonna be a link down in the description here of the podcast of the show notes. And you can go ahead and click that link, type in your email address, it'll shoot straight over to you automatically, and it's for you. So you can have that use it throughout the entire year. 00:16:39.055 --> 00:17:00.225 It has more than just what we've talked about today. It has any numbers that you'd pretty much need to know, at least at a basic level to make decisions in 2026 wisely. In fact, if you wanna stick around for tomorrow's episode, I'm gonna walk through all of the new updated numbers here in 2026. So be sure to subscribe if you're new here, so you don't miss that one. I'll talk through some of the details there. 00:17:00.225 --> 00:17:28.655 I want to give you one interesting thing that didn't change and never changes and how that is negatively affecting you long term that you might not be aware of. So if you want to learn about all the changes to come here in 2026, tune in tomorrow and you'll be made aware of everything to know there. Thanks so much for tuning into this episode of Retirement Answers. We'll talk to you again very soon. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. 00:17:28.655 --> 00:17:35.535 Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.