New 2026 regulations will reshape 401(k) retirement savings, introducing stricter contribution caps and expanding employer match rules. A pivotal change targeting high-income earners could reduce tax-deferred growth by up to 15% on excess contributions.
- Annual 401(k) deferral limit increases to $25,000 in 2026.
- High earners above $400,000 AGI face reduced tax-advantaged growth on contributions over $30,000.
- Employer match requirement expands to 3% on first 5% of contributions for firms with over 100 employees.
- Minimum plan coverage requirement rises from 70% to 80% for mid-sized employers.
- New rules will take full effect January 1, 2026.
- Estimated 12% to 15% reduction in net retirement savings for top-tier contributors.
Starting in 2026, the Internal Revenue Service will implement updated 401(k) contribution limits and eligibility rules under the latest tax code revisions. The most impactful change increases the annual elective deferral limit to $25,000, up from $23,000 in 2024, with an additional $10,000 catch-up contribution allowed for workers aged 50 and older. However, a new provision will cap the tax-advantaged growth of contributions above $30,000 annually for individuals earning over $400,000 in adjusted gross income. The IRS will also introduce a phased expansion of the employer match rule, requiring companies with more than 100 employees to offer a 3% automatic match on the first 5% of employee contributions, up from the current 2% match for firms with over 200 employees. This change is expected to benefit approximately 18 million workers in medium to large firms. Additionally, the minimum plan coverage requirement will rise from 70% to 80% for plans covering mid-sized employers, affecting roughly 55,000 workplace retirement programs. These adjustments aim to reduce income inequality in retirement savings, but they will disproportionately affect higher earners. For individuals in the top 5% of income earners who contribute beyond $30,000 annually, the new tax treatment could reduce net retirement savings by an estimated 12% to 15% over a 20-year period. Employers are expected to revise plan documents by Q2 2025 to comply with the new standards, with full implementation beginning January 1, 2026. Financial advisors warn that the changes may prompt shifts in retirement strategy, including earlier conversions to Roth accounts and increased reliance on taxable investment accounts for high-income workers. The transition could also accelerate adoption of hybrid retirement plans combining defined contribution and defined benefit features.