3 Big 401(k) Updates That Could Impact Your Future

Introduction – 401(k) Rules Have Changed (0:00)

Brian: If you’ve been paying attention, you know that 401(k) rules have changed. But what exactly is different, and how does it affect your investment strategy?

Bo: Brian, I am so excited because today we are going to unpack everything you need to know about your 401(k) in 2026, including the latest changes and how they’ll affect you.

Brian: And with that, let’s jump right in.

Why 401(k)s Are So Powerful (0:28)

Bo: So Brian, 401(k)s, they are a big deal. That’s not a surprise. As a matter of fact, 43% of the working population, almost one in two workers actually has access to a 401(k) right now.

Brian: Yeah, I think it’s important because everybody knows we like 401(k)s and more to come on that, but we at least do a refresher on why 401(k)s are so powerful.

Bo: Well, and there have been some changes in 2026 that we want to make you aware of. But before we talk about what’s changed, let’s talk about what’s stayed the same. Let’s talk about what a 401(k) is. And if we’re just going to do like, you know, Webster dictionary definition, a 401(k) is an employer-sponsored retirement account with special tax benefits that allow employees to contribute a portion of their paycheck to save for their retirement. I get to sacrifice a little bit of today to pay for my future self.

Brian: Okay. I love when we get to give definitions, but that’s not the sexy sizzle stuff. Let’s talk about why we actually love 401(k)s. That’s why you can tell I was already giving a prelude to it. Here’s the first thing. I love getting that free money. Get in there and get that free money from your employer because, by the way, they’ve already built it into their compensation analysis. You’re literally leaving money on the table if you don’t take advantage of it.

Bo: Yeah, we know that right now 92% of employers, nine out of 10 employers with a 401(k) offer some sort of match, some sort of employer contribution. So, not only do you get to save for your future and put away some of your dollars, but your employer is partnering with you, putting money in there that can help you build towards financial independence.

Brian: I mean, even if there’s not a match, there’s still some tax benefits. And then here’s the second part of this. You know, you hear about whether it’s Atomic Habits or other things. They always say, “Hey, make the good habits as easy as possible. Make the bad habits that much harder.” Well, guess what is automatic for the people, your 401(k), because this is going to allow you to definitely streamline making the good habit of building wealth that much easier through automated automatic investments every month.

Bo: Yeah, it’s a beautiful thing when you can kind of set it and forget it. I know that every month, every payroll, every pay period, I want X% of my salary to go into my 401(k). And I’ve already selected my investment option so I don’t have to think about it again. I can literally set it up at the beginning of the year and just let it rock and roll. It’s a great way to set up automatic wealth building because once those dollars get into the account, then you get to take advantage of the next thing, which is compound growth.

The Magic of Compounding Growth (3:02)

Brian: I love because by the way, these all work together because you’re not only getting the free money from the employer, you’re not only doing the automatic behavior that’s building wealth, but you’re getting to stack this on top of compounding growth. Guys, this is what changed my life. Y’all have all heard my story. If you haven’t, it’s in Millionaire Mission and elsewhere that I had an economics teacher with an off-hand comment that he said, “Everybody in this room,” this is my junior senior year of high school, “If you could just save $100 a month, you’d be a millionaire.” And I was like, “What? I could be a millionaire for $100 a month.” I’m here to tell you with a 401(k), it’s even easier than that if you’ll just let compounding growth do the magic work.

Bo: And the earlier you start that, the easier the path becomes. You just said, Brian, that your economics teacher said if you could save 100 bucks a month, well, it’s actually even a little bit better than that. If you want to be a millionaire by the time you get to 65 and you are 20 years old today, saving $95 a month is all you would have to do to get there. And when you get to 65 and you have your million, do you realize that only $51,000 of that would be money that you’ve put in, the other $950,000 would be growth, would be compound interest, would be your money working for you. The earlier you figure it out, the more powerful it can be.

Brian: Well, that’s 20 year olds, but we all know most people don’t start saving, investing when they’re 20. That’s A-OK, because if you’re 30, still 89% of that million dollars is going to come from the growth, the compounding growth. Even for 40 year olds. So, even if you feel like you’ve gotten a late start on this, there’s still an opportunity that 77% can come from the growth of compounding. That’s just using the power of compounding growth. But if you take it once again in combination with that your employer is going to be dumping money in there free or already prepaid into this thing for you, that makes it that much even more magical. Because listen to this. Now it’s 97% is growth and match of your million dollars. So you’re only putting in close to $26,000 if you’re 20 years old.

Bo: If you get a dollar-for-dollar match and your employer puts money in with you, it cut your work in half.

Brian: So, $970,000 essentially is coming from the growth and the employer match for the 30 year old because you’re like, okay, good on the 20-year-olds. Let’s talk about us 30 year olds. It’s still 94% or you’re putting in close to $57,000. The other I mean $900,000 plus is coming from the growth and the employer match. Even for the 40-something, 88% growth opportunity, you’re only going to put in $117,000. The other, you know, $880,000 could come from the employer match and the growth. Magical, incredible stuff. Don’t sleep on this.

Bo: If you want to see how powerful your specific dollars are, maybe you’re not a 20-year-old or a 30-year-old or a 40-year-old, but you want to know what can your dollars actually turn into, we have a great tool that you can check out if you go to moneyguy.com/resources. Check out our wealth multiplier tool. And this will show you what every dollar you save right now can turn into by the time that you retire. And we’ll even give you some numbers. Hey, this is how much you should save starting at zero to get to a million dollars. Here’s how much you should save to get to $2 million. And remember, if you get an employer match, if you’re getting free money, and it’s a dollar-for-dollar match, you can cut those numbers in half. That’s how powerful the employer match and the compound growth can be inside your 401(k).

Tax Benefits Keep Getting Better (6:37)

Brian: Well, look, I don’t know if it’s because I come from a public accounting background, so the CPA in me just wants to sing with joy and excitement about the tax benefits of 401(k)s. It keeps getting better. You see how we keep stacking these things on top is because even when these things were set up like in the early 80s they had traditional tax benefits, meaning that you get a tax deduction on your contributions, the money’s going to grow in a tax-deferred way and you don’t even pay taxes until you pull the money out in the future. But that’s the traditional way. But then, come along in the late 90s early 2000s we added this feature called the Roth. I think it was late 90s like 1998 and then that was Roth IRAs and then we got into the 401(k)s later. This is even better because you remember how we were just showing that for a 20-something you might find out that 97% of your million dollars is from the growth and the employer portion. For the 30-year-old, it’s still an incredible opportunity. What if I told you we could make that tax-free because Roth accounts, what happens when you fund it as a Roth contribution? You don’t get the tax deduction now. But what happens is all that growth is completely tax-free. That is incredible guys. This is why you have to think about when people are out there on social media telling you 401(k)s are a joke. They’re not good for you. Be like who? This means that you’re probably selling me life insurance or some other horrible product because if you could see free money, automatic for the people, compounding growth, tax benefits, this thing is get in there and get a piece of that.

Bo: And what’s great is that right now 93% of employers that actually sponsor or offer a 401(k) plan allow you to make Roth contributions. So this isn’t something that’s hard to find. It’s not something that’s likely not available to you. If you have access to a 401(k), there’s a great chance that you could begin taking advantage of Roth contributions. And one of the beautiful pieces of that is, you know, if you’re someone who’s been saving and if you’re someone who’s been putting money away, you’ve been able to do Roth IRAs and those are capped in 2026 at $7,500. But 401(k)s have different contribution limits than IRAs and they are much much higher. This is a great place for you to be able to sock away a lot of your salary, a lot of your resources. So much so that for most folks when they cross into seven figure status, when they hit the two comma club and cross over a million dollars, liquid net worth, it often happens inside their 401(k). And this past year was no different. 401(k) created millionaires reached an all-time high in the second quarter of 2025 with 595,000 people hitting millionaire status inside their 401(k).

Brian: Gosh, this stuff just gets me excited because it just shows you the power if you use money as a tool and just try to bring in how is this I’m going to use this tool of making my easy habits that much easier and I’m building on this automatic for the people and the compounding growth. Guys, this is why one of the first places we want to talk about because the headline here is look in 2026, some of these rules are changing. How do you know what’s going on? We are your source here at the Money Guy Show. Let’s talk about what’s going on with contribution limits.

Big Change #1 – Contribution Limits Increased (10:02)

Bo: Yeah. So, the very first big change actually has to do with contribution limits. We’ve already said that 401(k)s are an amazing place to build wealth. They’re getting even more amazing. In 2025, if you wanted to max out a 401(k), you could save $23,500 if you were below age 50. But now in 2026, you can actually save $24,500. If you’re age 50 to 59 or 64 and above, you can actually do a catch-up contribution. In 2025, it was $7,500. In 2026, it’s now $8,000. And if you happen to fall in that window of folks that are 60 to 63 years old, you actually even have a super catch-up opportunity.

Brian: Super catch-up.

Bo: So, not only in 2026 can you do the $24,500 regular salary deferral, you could save an additional $11,250. This is a great way to supercharge your retirement.

Brian: Look, I’m not going to name names, but we have somebody on the content team that wants us to buy a monster truck. I mean, they literally found a for sale monster truck that they want us to buy. This would be the super catch-up would be like super catch-up monster truck because they’ve allowed once again something good to get even better.

Big Change #2 – High Earner Catch-Up Contributions Must Be Roth (11:17)

Bo: Now in this vein, so this is a good thing that got even better. There is a little bit of a caveat that is the second big change we want to make sure you’re aware of and this has to do with a brand new rule that has been initiated for high earners inside 401(k) plans.

Brian: Yeah. Now this one hurt a little bit but it’s still kind of cool because it allows the catch-up. Here’s the thing. In the past, if you were in a high income tax situation, your 401(k), you could make contributions pre-tax like traditional, lower your taxes now, and you’re hoping down the road that when you retire, you’re going to be in a much lower tax bracket situation. You can do Roth conversions and other things. Allows you to manipulate the tax code. Well, as you can imagine, when you get to be 50 and greater, those additional contributions it was kind of nice that you could lower your tax bill that much more. Well, they’ve said, “Wait a minute. You’re making a lot of money. We want to now change it to where at least on those catch-ups once you’re 50 and greater, those have to go in as Roth, meaning you no longer get to take a tax deduction on those contributions.” If you have FICA wages over a certain threshold, we want to go ahead and change the rules. Now that’s going to have to go in Roth. We’re going to get our tax money. Yeah, you’ll get the tax-free growth, but we want our tax dollars. Now, that’s something you ought to be aware of.

Bo: Yeah. So, one of the great benefits is, okay, yeah, you can build up Roth dollars, but there’s a really good chance that this will impact your tax situation. We thought walking through just a very simple case study might be helpful to see this. So, let’s talk about Catch-up Carl. Catch-up Carl has an income right now, a taxable income or a total income of $200,000. In 2025, he maxed out his 401(k). And because he’s over 50, he also maxed out his catch-up contributions. So, when you take his total income minus the pre-tax 401(k) contribution minus the pre-tax catch-up, his actual taxable income was about $169,000. Fast forward to 2026. Let’s assume now that Carl has the same income, $200,000, and he’s going to max out the additional salary deferral. That’s $24,500 in 2026. And he’s going to also do the catch-up contribution of $8,000. But now the $8,000 because he’s a high-income earner has to be in the Roth bucket. What that means is his taxable income is actually going to be higher. Even though he deferred more into his 401(k) in 2026 than he did in 2025, his taxable income is actually higher because of that. So, it’s something you want to be aware of that while there’s still tax incentives and still tax benefits, this could change your effective tax rate. So, it’s something you want to make sure you stay mindful of.

Bo: And it’s around $150,000. If you’re in a higher income situation, pay attention to what’s going on with those catch-up contributions. Just something you should be aware of.

Big Change #3 – Alternative Investment Options (14:07)

Brian: Bo, let’s talk about big change number three. Now, this is one I’m not excited about. I don’t know how I feel because I mean, it doesn’t mean it’s bad. It just means that it opens it up for more tomfoolery and that’s alternative investment options in 401(k)s.

Bo: Yeah. For those of you who don’t remember, there was an executive order directed the Department of Labor last year to expand the 401(k) investment options to now include alternative investments. And I think the way the language was written, it says, “Hey, we’re not going to exclude them anymore. They’re going to be open to where you might potentially see some alternative investments inside 401(k)s.” And alternative investments being things that are not traditional stocks, not traditional bonds, not publicly traded entities. And so, while it’s not a guarantee they’re going to be there, there is a good chance that these may start to show up in 401(k)s and these could be something where dollars inside of retirement funds could begin being allocated.

Brian: Well, and let me give you my perspective on this is that I’m not against alternative investments. I mean, I’ve worked for firms where we did this, you know, whether it was setting up syndicates or setting up private ventures and other things, but this was cherry on the sundae for somebody who’s already extremely successful. What I worry about, Bo, is that typical Americans, not necessarily great savers and builders of wealth. And I love that we have this vehicle that makes it automatic for the people. I also love the fact that more and more with the fiduciary standards and other things that have been put on retirement accounts, you saw the proliferation of more index funds, more things that were low cost, more things that were cut and dry and these things as the economy started instead of trying to beat the economy just be the economy because things were getting better and better through innovation. I don’t want alternative investments to be a distraction from people doing the basics nuts and bolts of, hey, buy the economy, buy the index funds, they’re low cost, they’re going to do well for you. I don’t want you to apple cart turnover and feel like you have to throw those things out just because there’s some sexy sizzle that’s out there with these alternative investments.

Bo: And so, what does this mean practically for you? Well, we just want you to be aware of your allocation. When you’re making the choice to defer some of your dollars today and you want to invest them to grow for the future, you ought to know what you’re investing in. So, make sure when you go into your plans and you select your investment options or you select your target retirement index funds, it’s worthwhile just to understand what those are investing in and make sure that aligns with what your dollars ought to be doing and what you want your dollars to be doing. Again, there’s more to be seen on this in terms of how it’s going to play out and how they’re actually going to manifest, but it is something that we want you to be aware of and want you to know is happening inside of your retirement plan.

Understanding Withdrawal Rules (16:58)

Brian: Yeah. Let’s talk about because those are the big changes. I think there are some other important just as a basic education there’s some other big 401(k) rules that you ought to understand. First of all, if we’re all going to be saving and building up and this is the first account that’s likely to cross into seven figures, we ought to at least know what are the withdrawal rules. How do I even get access to my money as I’m building up these big accounts?

Bo: So, retirement assets are built for retirement. And so one of the things that’s written into them is if you try to access these dollars and pull them out before you get to a certain age, there’s going to be a penalty assessed. So if you want to make a qualified distribution from your retirement account from your 401(k), most times you have to wait until age 59 and a half to be able to pull that money out penalty-free. But there is one small caveat. There is something known as the rule of 55 that if you are employed with your employer in the year that you turn 55, you can then access that employer sponsored retirement account, that 401(k), that 403(b) before you get to 59 and a half. But if you retire and you roll it to an IRA or you don’t have assets in your current employer’s 401(k), you cannot get penalty-free access until you get to age 59 and a half.

Brian: And I don’t know if we’ve said it already, but that penalty that we’re trying to help you avoid is 10%. And it’s a painful thing if you think about if you’re pulling the money out, not only do you have to pay income taxes if it’s traditional, but then you have to pay a 10% penalty. You can essentially gut almost half of the value of your asset just by making these withdrawals. So, we always just want to make sure people are aware. And the other thing I always we didn’t really bring it up here, but there are carve-outs for like first-time home buyers, medical expenses, hardships, and things like that. But just because you can doesn’t mean you should. Look, I’m never going to get on you if you’re in a dark situation and you have to get these assets. I mean, that’s a conversation piece, but just don’t let this be the first account that you’re thinking about. This needs to be a break glass to get access. It’s not the first place just because you want to put a swimming pool in the backyard.

Required Minimum Distributions (19:00)

Bo: Well, and so that’s how you access the assets. That’s how you would draw the assets. One of the things you need to know about qualified employer sponsored accounts, 401(k) specifically, is that there will be a time where even if you don’t want to withdraw the money, the government’s going to make you start withdrawing your money. And that’s known as taking a required minimum distribution. Right now, for folks who hit 73 years of age, the government’s going to say, “Hey, based on your account value at the end of last year, and based on a mortality factor, based on your age, we’re going to make you, even if you don’t want to, pull money out of this account, pay your income tax, and then we don’t care what you do with it after that.” It’s something you want to be aware of, especially if you have large pre-tax 401(k) balances.

Brian: Yeah, this is one of those things where as financial planners, it is part of our bread and butter because we do such a good job of building up these big retirement accounts that they literally create tax bombs that when we’ve done Making a Millionaire episodes, we have shown literally sometimes changes that you’re nibbling around the corners of things. These are changes when you pay attention to where your required minimum distributions what those will look like in retirement. If you’ve been very successful at building retirement assets, seven figures, millions of dollars, you literally will pay millions of dollars more in taxes if you don’t structure your account right. So that’s why you should definitely be paying attention to required minimum distributions. Even if you’re in your 40s or 50s, plan ahead. This is the big stuff we do as financial planners to help clients avoid these huge tax bombs.

What To Do With Old 401(k)s (20:36)

Bo: So, another thing we want you to recognize is that it’s pretty commonplace today that the employer that you start your career with is often not the employer that you end your career with. A lot of times we are changing jobs and we’re moving to different companies. And what happens likely or at least we’ve seen with clients we work with is you kind of leave this trail of old 401(k)s behind from previous jobs. It’s not uncommon for someone to come in and we look at their account statements and before we even see their resume, we can kind of see their work history based on where their old 401(k)s are. So, we want you to recognize you do have some options when you change jobs as it relates to your employer sponsored retirement plan.

Brian: Look, I’m going to use this as a bully opportunity. And look, I’m a nice guy. I don’t bully anybody, but I am a bully when it comes to getting access and using your 401(k) because I’ve seen it. I mean, I made that joke earlier when I think about bad uses of when you change jobs of your old 401(k). I’ve seen swimming pools. I’ve seen shiny red pickup trucks. I mean, there are lots of things that I’ve seen and that’s why the stat that breaks my heart is that 41% of Americans will cash out at least a portion of their 401(k) when they leave their job. But by the way, when I say a portion of their 401(k), you realize 85% of these people that are in this 41% take the whole dang thing, the whole enchilada. And I know it probably because it seems like it’s no different when I pick on credit cards. Credit cards seem like they are solving all the problems you have at the moment. Hey, I don’t have money right now, but I’d like to buy this thing. And then you have this financial institution that says, “Hey, I’ve got this great thing. I’ve got this bridge of a credit card where you don’t have money now, but you might have it in the future. You can use this and it’s a tool that will trap you.” Well, I feel like the 401(k) and early access because you leave your employment and then they send you a notice and then they probably send you a rollover package or a distribution package saying, “Hey, you’ve got this account that’s worth $50,000, $100,000. What would you like to do with it?” And you’re like, “Well, wait a minute. I got kids going to college. I need a new car. I mean, I’m Clark Griswold. I want to put a swimming pool in the backyard.” What do you know? This is an answered prayer. No, you need this money for the future. You have spent literally decades building up these assets. Don’t let a moment of weakness take this opportunity of letting this money continue to work for you in the long term. So your 50, 60, 70 year old self looks at you with a thumbs up and then gives you a bear hug for doing things right.

Bo: Yeah. It’s a temptation for a lot of folks when you change jobs. It’s the first time you even recognize I had the option to get to these dollars. But if you cash them out, not only are you going to pay ordinary income tax, you are, if you’re under 59 and a half, going to pay a 10% penalty. So you’re going to wipe out a huge chunk of your army of dollar bills unnecessarily. So let’s assume that you’re not going to cash it out and you’re not going to be one of these 41% of folks that do that. You do have some options. You can roll the money into an IRA and you can choose where that is. Is it a Fidelity, a Vanguard, a Charles Schwab? If you’re getting a new job and you have a new employer-sponsored retirement plan, you can roll it into the new 401(k). That’s totally something you can do. Or number three, you can actually leave it right where it is. There’s nothing that says so long as your 401(k) is over a certain amount, and it depends on the plan. It’s usually either $1,000 or $5,000. If it’s larger than that, there are no rules that say that you have to move it out, that you have to move it somewhere else. So, if you work for a Fortune 100 company or used to work and it’s a great 401(k) with great options and great tools that you can utilize, you can leave it there. All three of those options, IRA, new 401(k), old 401(k) are fantastic solutions that would likely be much better than cashing it out. So, maybe you’re thinking, well, how do I decide? How do I know which one of these makes sense? Don’t you worry, we have a resource for you. If you go to moneyguy.com/resources, we actually have a flowchart that can help you figure out what do I do with my old 401(k). If this is true, then do this. If this is not true, then do this. And you can literally follow it through to determine what you should do with your 401(k) besides cash it out and put a pool in the back.

Brian: I’m going to say this a little differently. Bo just said we had a flowchart. When I hear flowchart, I’m like, what’s he going to say next? We got to diagram some sentences. No. Every flowchart decision matrix if you want to know if you got an old 401(k) and you just you’ve asked yourself man what do I do with this I know I don’t want to mess this up guys have made this clear that this is a big decision point in my life, go out there moneyguy.com/resources and you definitely need to check out got an old 401(k). We will give you the decision matrix that will answer all your questions on this.

Bo: I want to be clear this is just me and you, you guys take a break real quick. This is just me and Brian talking right now. You said that flowchart wasn’t cool and the cool thing you replaced it with was decision matrix.

Brian: Well, this is something. Yes. Because now you’re saying, hey, I’ve got a decision to make. This is going to tell me what to do. Whereas a flowchart is like, okay, we can agree to disagree.

Bo: Yeah, I want to fight on this one. All right. So, moneyguy.com, moneyguy.com/resources. Go figure out what to do with your old 401(k).

Consider Roth Conversions Before RMDs (26:13)

Bo: Another thing that we want you to recognize, and this is something we want you to be in your mind, because we’ve already told you, at some point in your financial journey, you will likely lose control of your tax situation because the government’s going to say, “Hey, sir or ma’am, you’ve done such a good job of building your assets. You’ve done such a good job of saving. You’ve done such a good job of building wealth that we are going to force you to start taking some of that money out.” What if it pushes you into a larger tax bracket? Oh well. What if you don’t need the money? Oh well. Once you hit that age, 73 currently, you don’t get to choose whether or not you pull money out. So, one of the things that you might want to consider before you get to that age is are Roth conversions, and all a Roth conversion is is a strategy where you convert some of your pre-tax assets to Roth. Are those something I should be considering before I get to my required distribution?

Brian: I think about this all the time because this is the part we tell everybody financial becoming wealthy is relatively simple. But don’t mishear me. That’s not saying that it’s easy. And that’s why we can give you all the free advice. Go to moneyguy.com/resources. But it is one of those things where I think it’s quite interesting is that when you get to retirement because these tax bombs that get created with these awesome savings opportunities with 401(k)s and so forth, they not only when they make you take the required minimum distribution, it impacts your taxability of your social security, it impacts the premiums you pay on your Medicare. I mean, this stuff you start seeing a ripple effect and you just don’t know what you don’t know because guess what? This is your first and only retirement. Wouldn’t it be nice if you had somebody who’s done this literally hundreds if not thousands of times? Well, that’s exactly where we come in. We leave the porch light on for you. We work with clients all across the country. As you can tell, we get excited about this because look, I don’t know if it’s from my public accounting background or if it’s Bo being a nerdy CFA, but we are in the weeds with this stuff, but we’re also educators to our core. And if we can help people maximize and kind of navigate these complex situations, we’re here for it. And that’s why I’d encourage you if you resemble any of this and you’ve been successful at building your army of dollars, go check it out. Moneyguy.com/become-a-client or just go to moneyguy.com or aboundwealth.com. You’ll see we make it very easy for you to navigate to the become a client section. We’d love for you to give us an opportunity. That’s why we plant the seeds of knowledge so that you can reach a level of success that you will definitely need us in the future. I’m your host Brian joined by Mr. Bo. Money Guy team out.