Q&A: How will the IRS adjustments to retirement plans affect you?
By Bryan McKenzie
Preparing for retirement can be taxing.
Aside from Social Security, America’s retirement programs include a range of savings options, from numbered plans like 401(k)s and 403(b)s to plans for small-business owners and the self-employed.
Under U.S. tax law, the IRS sets the maximum amounts that can be contributed each year into these accounts to generate savings for use in the golden years of retirement.
Rodney Sullivan, Executive Director for the Mayo Center of Asset Management.
This year, IRS officials announced increases in the amount of allowable contributions for a wide range of accounts.
To find out what the changes mean, we checked in with University of Virginia Darden School of Business’ Rodney Sullivan, executive director of the Richard A. Mayo Center for Asset Management.
Q. Before we talk about changes, what is the difference between a 401(k) plan and others like a 403(b) and 457? Which are the most common?
A. All of these are tax-advantaged, employer-sponsored retirement plans. So, each plan type lets employees save for retirement in traditional pre-tax – or via a Roth, which means savings go into your account post-tax – allowing for tax-deferred growth of their money.
The main difference lies in who sponsors the plan. 401(k) plans are the most common plan and are offered by private-sector employers (businesses and corporations). 403(b) plans are typically offered by public schools and universities, as well as nonprofit organizations and churches. Finally, 457 plans are offered by state and local governments.
State-affiliated universities, like UVA, often offer employees the opportunity to participate in both a 403(b) and a 457 plan.
Q. The IRS has increased the amount that can be contributed to the savings accounts for 2026. What led to that action?
A. Every year, the IRS adjusts contribution limits for various retirement accounts; 2026 contribution limits are rising due to cost-of-living adjustments. These accounts are the main way Americans save for retirement, and the ability to save more supports a more secure retirement.
Q. Who will benefit most from the contribution changes?
A. The 2026 changes are especially helpful for savers ages 50 and over due to higher “catch-up” contribution limits. These are additional contributions beyond the standard retirement plan limit.
Note that workers aged from 60 to 63 are now allowed to make “super catch-up” contributions, allowing for up to as much as $11,250 in additional contributions. Importantly, participants who make catch-up contributions, and whose Social Security wages exceed a projected threshold of $150,000, must make catch-up contributions in after-tax Roth accounts rather than pretax accounts.
One caveat: In 2026, high earners whose employers don’t offer a Roth 401(k) won’t be able to make catch-up contributions at all.
It’s worth noting that the changes also help middle-income earners who save via IRA contributions, as these limits are rising as well. In general, however, the changes are less helpful for those who are far from maxing out contributions or who might be constrained in their ability to save more.
Q. According to the Social Security Administration, the national average wage is about $70,000. How will these changes affect the average wage earner?
A. Because contribution limits are rising, workers will have more headroom to take advantage of tax-deferred retirement savings next year. This is good news! For example, the standard retirement plan elective deferral limit increases by $1,000 to $24,500, and the IRA contribution limit rises to $7,500 (from $7,000).
Of course, the benefit of higher limits assumes savers can actually contribute up to those limits. That means the real impact depends a lot on the individual’s saving behavior and employer plan offerings.
This article was originally published in UVA Today.
The University of Virginia Darden School of Business prepares responsible global leaders through unparalleled transformational learning experiences. Darden’s graduate degree programs (Full-Time MBA, Part-Time MBA, Executive MBA, MSBA and Ph.D.) and Executive Education & Lifelong Learning programs offered by the Darden School Foundation set the stage for a lifetime of career advancement and impact. Darden’s top-ranked faculty, renowned for teaching excellence, inspires and shapes modern business leadership worldwide through research, thought leadership and business publishing. Darden has Grounds in Charlottesville, Virginia, and the Washington, D.C., area and a global community that includes 20,000 alumni in 90 countries. Darden was established in 1955 at the University of Virginia, a top public university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.
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