Retirement Retirement Planning

The Hidden Tax Reasons Some Workers Should Pause 401(k) Contributions in 2026

Some 2026 tax changes might make 401(k) contributions less appealing.

By Catherine Collins

Edited by Amanda Machado

Updated Jan. 6, 2026

There's no doubt that 401(k)s are one of the most beneficial retirement accounts available in the United States. For most people, having a 401(k) helps them invest for retirement automatically, making it easy to contribute consistently. For the vast majority of people, investing in a 401(k) in 2026 is still a great money move.

However, for people in certain situations, maxing out a 401(k) might not make sense from a tax standpoint, as some new 401(k) rules take effect in 2026 due to the Secure Act 2.0. Keep reading to see who will be affected by these changes, and always double-check with an accountant or financial advisor before making any changes to your retirement plan.

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People who will make more money this year

If you think you'll have a significant income jump this year, consult with a tax professional to see whether or not maxing out your 401(k) will be beneficial to you. Sometimes, contributing to a 401(k) might not lower your tax bill as much as you expect.

Plus, if you have a big income jump, whether from a sales bonus or a large sale of company stock, you might want to conserve cash in case you have to pay for a larger tax bill. Again, speaking with a tax professional or a financial advisor can help you make the best choice for your specific situation.

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Those over 50 are making catch-up contributions

In 2026, high earners over age 50 who earn over $150,000 a year will be required to make catch-up contributions as Roth (after-tax) contributions instead of traditional (pre-tax) 401(k) contributions. What this means is that people who relied on catch-up contributions to lower their taxable income will not be able to use them in the same way in 2026.

For that reason, some workers may have a higher tax bill than in previous years and may want to reassess their investment and tax strategy with a qualified professional.

People close to losing a specific credit or deduction

If your income impacts your tax credits, deductions, or Medicare premiums, it's important to manage your 401(k) contributions accordingly. For example, if you qualified for a tax credit under previous IRS rules, check whether that will still apply in 2026 under the new tax changes.

Those choosing between Roth and traditional investments

All workers, regardless of age, should think carefully about how Roth and traditional investment contributions impact their taxes. Some people have enough cash flow to max out a traditional 401(k) and a Roth IRA. Others may have to choose between the two.

Traditional 401(k)s lower your taxable income, but Roth contributions offer tax-free withdrawals in retirement as long as you meet specific qualifications. So, those trying to decide between these two investment types should seek professional advice on how those decisions will affect their tax bill next year.

Anyone having a significant life change

If you are going through a significant life change, such as a job layoff, moving to a different state, divorce, marriage, a health issue, or caring for a family member, these changes can require you to shift your financial priorities. During these times, it might be more beneficial to have greater cash flow than to make extra 401(k) contributions.

People who need cash sooner

When you invest money in your 401(k), the idea is not to touch the money until you retire. If you withdraw money early, you typically have to pay taxes and penalties on it. So, if you know you're going to need cash sooner, making sure you have a savings account on hand can prevent you from withdrawing money or taking out a 401(k) loan.

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Risks of pausing 401(k) contributions

Even though you might have a specific reason for pausing your 401(k) contributions or not adding extra 401(k) contributions, it's still important to understand the risks and drawbacks of making this decision. For example, if you pause 401(k) contributions completely, you may not be eligible for your employer's match. If you only put a small amount in your 401(k) each year, you might not have enough retirement income. Pausing your pre-tax contributions can also increase your taxable income, which could put you in a higher tax bracket depending on how much you earn.

Bottom line

For most people, investing in a 401(k) is still one of the best ways to save for retirement. However, people in certain situations might benefit from pausing 401(k) contributions or not making extra contributions for a period of time. While this won't apply to everyone, some employees who experience the scenarios mentioned above may want to reevaluate their tax strategy with a financial professional. That way, you can make sure that you can retire comfortably, regardless of challenges you may be facing or the tax laws that have been updated for 2026.

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