Changes for 2026
Starting in 2026, the Secure 2.0 Act will require highly paid individuals (HPIs - defined as those with W-2 box 3 FICA wages exceeding $145,000 in 2023) who are 50 or older to make catch-up contributions to a Roth account instead of a pre-tax account. This major change affects how these contributions are taxed for certain employees and requires employers to offer a Roth option in their retirement plans if HPIs will be able to make catch-up contributions in the future.
Mandatory Roth catch-up contributions for high earners
What it changes: Previously, employees aged 50 and over could choose to make catch-up contributions on either a pre-tax or Roth (after-tax) basis. Starting January 1, 2026, eligible HPIs no longer have this choice and must use a Roth account.
Who is affected: This rule applies to employees who earned more than $145,000 in FICA wages in the previous year (the $145,000 threshold is indexed for inflation). For example, a worker who earned more than $145,000 in 2023 will be subject to this rule for their 2026 catch-up contributions. Indexed number for lookback to 2025 will be released before the end of 2025.
What this means for employees: Catch-up contributions will be made with after-tax dollars, which will not lower your taxable income in the year they are made. However, the money will grow tax-free, and qualified withdrawals in retirement will also be tax-free.
What this means for employers: Employers must now offer a Roth contribution option in their plans. If a plan does not have a Roth option, HPIs will be unable to make catch-up contributions.
How to prepare
For employees:
- Review their FICA wages from 2025 to see if they will be affected by the Roth catch-up rule in 2026.
- Consider how the switch to Roth catch-up contributions will impact their overall tax strategy, as they will no longer receive a tax deduction for those contributions.
- If they are a high earner and their employer does not offer a Roth option, they should inquire with their Plan Administrator to ensure they add one to comply with the new rules.
For employers:
- Coordinate with their payroll and Plan Administrator to identify employees subject to the new mandatory Roth catch-up rule.
- Ensure their plan offers a Roth contribution feature if it does not already. The deadline for formal plan amendments has been extended, but good-faith compliance is required starting in 2026.
- Communicate clearly with affected employees about the changes, as some may be accustomed to making pre-tax catch-up contributions.
Potential increases to contribution limits
While the official 2026 limits have not yet been announced by the IRS, Mercer has projected increases in several categories based on inflation data points.
- IRA contribution limit: The limit for traditional and Roth IRAs is projected to increase from $7,000 in 2025 to $7,500 in 2026.
- 401(k) and 403(b) contribution limits: The total employee contribution limit for workers under 50 is expected to rise from $23,500 in 2025 to $24,500 in 2026.
- Standard catch-up contributions: The regular catch-up contribution limit for individuals 50 and older is projected to increase from $7,500 to $8,000.
- Higher catch-up for ages 60–63: The enhanced catch-up limit for those aged 60 to 63 could increase from $11,250 in 2025 to $12,000 in 2026.
- The IRS typically announces official limits for the coming year in late October or early November.
Other notable changes
- Full retirement age for Social Security: For individuals born in 1960 or later, the age to receive 100% of your Social Security benefits will officially become 67 in 2026.
- Social Security earnings test: For those collecting benefits while still working, the earnings limit will increase. In 2026, the limit is projected to be $24,360 for those under their full retirement age.
- Paper statement requirements: Defined contribution plans will be required to provide a paper statement to participants at least once per year, unless the participant specifically opts for electronic delivery.
And as always, consult a tax or financial professional to determine how these and other tax changes might impact your retirement savings strategy.
Leisha Gosling has worked for over 30 years in the field of Defined Contribution Plan Administration. She graduated from University of Louisville with a Bachelor of Science in Business Management and from Sullivan University with a Master’s degree in Business Administration. Leisha joined RMS as a New Business Consultant in 2020. Her areas of expertise include qualified retirement plan administration and consulting, plan document underwriting, and compliance. She focuses the majority of her time at RMS on new client implementation and onboarding as well as marketing and new business initiatives. She also maintains the plan document used by the firm and performs special research projects. Leisha has been awarded the designations of Qualified 401(k) Administrator and Qualified 401(k) Consultant from the American Society of Pension Professionals & Actuaries and Certified Employee Benefits Specialist from the International Foundation of Employee Benefit Plans.
RMS Resources
RMS Latest News