Losing Your 401(k) Tax Break: What You Need to Know for 2026

Big changes are coming to retirement planning—and they may hit you sooner than you think. In this week’s episode of The Capitalist Investor, Tony and Derek break down new rules that eliminate a key 401(k) tax break for employees over age 50 making more than $150,000

Congress is now forcing these catch-up contributions into Roth accounts, removing the upfront tax deduction many workers rely on. While this may sound like bad news, Tony and Derek explain why having a Roth “bucket” might actually strengthen your long-term tax strategy.

You’ll learn:

• Why losing this deduction isn’t as catastrophic as it sounds
• How building three “buckets” (cash, tax-deferred, and tax-free) gives you flexibility in retirement
• What the new rules mean for Medicare surcharges and health care costs
• Why the government is really making this change—and how it could affect your future

They also share frustrations with the complexity of the Secure Act 2.0, including catch-up age rules, savers’ matches, and automatic enrollment requirements. Is it smart policy—or just another mess for workers and employers?

👉 If you’re over 50 and planning for retirement, this episode is a must-listen.

Transcript

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Employees over the age of 50 are losing an important tax break in 2026. If you're over the age of 50, making more than $150,000, you're losing a helpful deduction contribution for your 401 K ketchup provisions. This is something that Congress is forcing people into a Roth IRA. Whether you like it or you don't. Tony, what's going on, man? How are you? Not much man. How about the Ryder Cup? There's. There's not been not been the greatest, sports week? Yeah. I mean. Ryder Cup was a disaster. Yeah, they just couldn't play. Couldn't play together, I guess. I mean. The course setup was a mess. The pairings were a mess. Yeah, the play was a mess. Yeah. Kind of got a little bit exciting, I guess. And the last year. Yeah. You know, that's. But they had to win, like, every match, right? That wasn't going to happen. And, you know, you you peg it on one putt from Henley keeping it short on a birdie. But, I mean, what about, there's what about all the other shots the first two days? So anyway. All right, well, today we're talking today, something that came out just recently, probably within the last week or so, where they, they the, the government, Congress has, implemented a new rule. For next year. And what they're doing is they're taking away a, helpful deduction on our taxes because they are what are they are doing is that they are going to force anyone over the age of 50 that is contributing to your 401 K, but also doing the catch up. So like for 2025, for example, everyone's allowed to contribute up to $23,500 into their 401 K if you're over 50, you get to contribute another $7,500. So 31 total if you're over 50, if you're under 50, 23,500, next year and we don't know what the numbers are going to be next year, but I assume that the 23 five is going to go to 24,500 and the 75 coordinate. That's what they're projecting. So but that $8,000 for next year and that's an estimated number is not going to be tax deductible. They are going to force you into the Roth component of your 401 K if if you even have one. Right right. So that's a big issue. And you actually, you know what. Let me retract that. It's not a big issue. I know you were losing deductibility. And if you really put pen to paper, you know, like you're you're losing two, you're going to pay $2,000 extra in taxes to save that money. You're not going to get the deduction. You're not going to get $2,000 back. Right. That's essentially what it equates to. Right. Maybe a little bit less. I'm rounding. But that is that's all that's happening now. A lot of people are like, oh, you're losing important tax break. And yeah, the the government needs money and they're thinking of creative ways at this point to get that money. And I think it's I mean, I get it, it's, you know, who doesn't like a tax deductible, you know, contribution. Right. But I've always said and you know, Derek, when we were teaching our educational classes like, it's okay to have three buckets of money walking into retirement, cash tax deferred and tax free. The government is forcing now the third bucket. If you don't have it, they're forcing that tax free bucket. And I don't see a problem with it. You got to pay the taxes at some point. You're paying it upfront. And but now what you have is a tax free bucket of money for retirement when you retire. Right. So yeah, you know, I think I think you hit the nail on the head right there. You know, I'm a huge proponent of, tax, status, diversification, in retirement, you know, and these are kind of just things that you see, you know, throughout your career, you know, you see the number 50 out there and you think it's, a ways away and it's only an IRA looking at each other, like, think that's not too far away now. Five years away. But, you know, it's, it I think it is so important, especially when you get a plan. A financial plan a little bit earlier on. We've been told basically our whole life that we have to jam as much money as possible into, you know, tax deferred, vehicles like your IRA, like your 401 K. But, you know, in our careers, we've been around long enough to kind of see, I don't know, want to see necessarily the fallout on that, but, if you only save into one bucket and you have to pay taxes on everything that you pull out in the future, it does kind of limit to your, being able to access that money because you have to, you know, pay big taxes on it. Yeah. Whether you're buying a house or a boat or, you know, moving or whatever the case may be, if you need, you know, a big chunk of change and it's all and it's all in your IRA account, you know, you're going to have some, some issues pulling that out. Yeah. I mean, if all your money's in a tax deferred traditional side I'll call traditional side tax deferred. Guess what man. Like there's really not a lot of tax strategies in retirement other than maybe conversions. Yeah. But if you now have pockets of money where you got a traditional side of the equation, you have a Roth side, you have a cash side. This is where you can start pulling from every bucket to optimize your, you know, I guess you like where you're going to land in your, in the federal tax brackets. Yeah, right. You can hypothetically take maybe 60% of your money from your traditional in 20 from cash and 20 from Roth to get your lifestyle income in higher level. And by doing that, you can maneuver and keep your taxes low and efficient. Right. Doing that. Right. So again, why they're doing why the Congress is doing this. It's essentially, they need the money. Let's face it. Hey, they're they're going broke and they're constantly, deficit spending. So that that's why they're doing this. And but you know what I mean? I know they're going to spend it be like, hey, everyone needs a Roth IRA and tax free growth. And, you know, spending the positive, which I'm on board for. I mean, I get it, the only thing I would say, because I've said this in the past is, you know, getting the most deductibility while you're working is really what you want to do. Because those are that's his money. Those are your high earning years towards the end, you know, 50 and above, age 50 and above. But, it's nice to get that tax tax deductibility because by the time you retire, you're the money that you need to retire and live your lifestyle is probably a lot less than what you are making. So you're you most likely. I see most people are in a lower tax bracket right, than when they retire than when they're working late. It's like, oh, you're going to be in a higher one. No, I don't I don't see that too often actually. So I would say that that is a con. I think you're you are losing it, but you are going to gain it back. Because if that account continues to grow, you don't pay any taxes on the gains. Yep. You're so, you know, something? To also keep in mind are the, Irma glyphs for the Medicare surcharges. So what what did you just say? The IRS. So that's like the, the Medicare, stuff. Right. So, the the higher income that you have, you know, the the more that you could potentially pay, and. Medicare at Medicare costs. Yeah. So, that's something that, you know, that's another tax planning thing to keep in mind, especially in retirement. So, you know, I, I completely agree with Tony. But also sometimes at the beginning of retirement, maybe you take like a big trip or maybe you're, you're moving or maybe have one tax year that that's actually bigger than, you know, your one of your final years working. So it's important to keep that in mind. If you're taking, again, big chunks of money out of your qualified plans that could, you know, cause your, your health care costs to go up as well. Yeah. I mean, man, can you like what a what a mess. So I'm serious. Like, if you think about it, like, now, now the I mean, it's not I don't think it's my problem nor is it, is it. You know, the employees problem. But it's like the people that run the 401 K like they have to now. A they have to make sure that the plans have a Roth IRA, but now they have to like calculate the thresholds as you get there, be like, hey, everything's traditional up the light switch, you know, flipped on, and now you gotta dump it over to the Roth like there's has to be like, I'm just thinking some weird nerdy stuff. And it's like the algorithms to, like, catch the people before, you know, as the as you tip into that Roth bucket that, you know, and it's like, man, what a way to make it comp. I mean, we our tax code is so goddamn complicated, man. Like they they created a new rule this year where you got the super catch up and it's from age 60 to 63 that you can, rather than $7,500, contributions, you can make 11,250. What if you're 64 or 5? Like, who keeps track of all this else doing this? Why why why? You know, to me, that was my main takeaway from this. The secure act, the two point. So to be clear, this was all the way back. Should you want to, you gotta say it. Shitshow man, that is constantly, literally when I was looking at all this stuff so that that that was my plan to say those exact words. This is a shit show from top to bottom. And this is the literal definition, like who's keeping track of all this stuff? So like obviously we need to, but still like God. So part of so this is obviously a democratic plan, you know, signed into law by Biden. You know, and you can kind of see the, you know, the, the fingerprints of like a, you know, socialist type of, you know, spin on these things. So basically, you know, they, they let, businesses, match your student loan payments, you know? So that's good. But who keeps track of that? But even even more, there's a savers match. So basically, if you're a single filer and you make under 20,000 or a joint married filing jointly, and you make under 40,000, the federal government is going to put money into your 401 K up to two up to $2,000. Okay. So that's like a that's like a pseudo employer. Safely. Safe harbor because, you know, typically some some employers offer the safe harbor, whether you're going to contribute for you of a percentage of your wage, right, 3% sometimes or, things like that. Now the government's kicking in money, too. So potentially you could have, you know, yourself, your employer and the government all kicking into your 401 K plan like you. I mean, but you gotta be making 40 grand as a married couple. Signing under or under. The under under 40. So exactly. So if you're making 40 grand total, as a married couple, are you really, you know, saving, you know, 10% of that? Yeah. The 401 K plan. Yeah. It's it's, I mean, that's, you know, that's I mean, I guess that's good. I mean, that's if, if that's your full time wage, that's a problem. If that's her side hustle. Yeah. It's not too bad then. Right. If you're, retired, have a small, you know, like a side job, you know, a part time job. Yeah, I could I could be, something to think about. You know what needs to be in stuff like this is like education, right? So, like, I, you know, I am in this business. I had no idea about automatic enrollment. Now that basically, you know, if you're if you're not a small business, you have to automatically enroll all of your, employees, which in theory is a good thing. But are they going to take advantage of it? Do they even know about it? Do they even know about you know, how it works. You know, these are the things that people need to know. It's not just passing this just complicated and lengthy, legislation that, you know, it might sound good in theory, but how many people is it going to help? Yeah. And and how many, it the complications. But yeah, I mean, I just, I just can't get over it. But at the end of the day, what is really happening and while some this up again is that the government needs money and they're going to force you the, the savers, the, the, you know, the essentially it's, you know, those dual income households that, high salary employee, people that are working or have side income, they're forcing you to pay your taxes upfront, you know, but again, the pro is that you get that on the back end. Yeah. But I, I and again I can spin it the other way and say, well you know when I'm working that's when I'm making the most money. So now they are screwing me. Right. So because you got to pay. More tax, you got to pay more taxes now. And when I'm retirement, I'm probably going to be in a lower bracket typically. And so again, it's just, it's just one of those small things. And it sounds like, you know, we're making a huge, big deal out of this. But at the end of the day, it's too grand. And if you're if the deductibility maybe just under two grand of deductibility that we're losing. Yeah. Two grand in taxes. But also I think a good action item is to you know, if you're making over that threshold to check your, employee plan to make sure that you have the ability to contribute to a Roth. Right. Big deal. Because if you don't, you know, you should definitely talk to, you know, HR or whoever's in charge to get that out of. You need to start asking them now, because it is not easy. Usually you can't, you know, like most plans are done annually, like so like it is updated annually to do this. And a lot of lot of employers have this right. You know, like if they have a 401 K plan, they have turned on the light switch to do traditional and Roth contributions. It's, you know, that's that's pretty common. But there might be those smaller plans that don't offer. Yeah. Like the older plans. Right. So well, let's wrap this up. Man is so short one because it's just, it's a very single basic topic. It's a shit show. And, you know, if you have any questions, drop them in the comments. Reach out to us info at WP connect.com. If you have additional questions on this we can help you navigate through it. Anything else you want to add there the. Number and get a get a long term tax, strategy. Not just, single year strategy. That's right. So we'll talk to you guys next week. The opinions expressed in the podcast. Are for general informational purposes only, and are not intended to provide specific advice or recommendations for any investment, legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.