FocusPay Solutions wants to share an important update regarding changes to catch-up contributions effective for the 2026 plan year. We want to make sure you understand what is changing, who is affected, and how you can plan accordingly.
What’s Changing
Under the SECURE 2.0 Act and recent guidance from the Internal Revenue Service (IRS), beginning January 1, 2026, if you meet certain income and age thresholds, your catch-up contributions must be made on a Roth (after-tax) basis rather than the traditional pre-tax route.
Here are the key points:
- “Catch-up contributions” are extra retirement plan contributions that participants age 50 or older may make, over and above the regular elective deferral limit.
- For participants with FICA wages over $150,000 (indexed for inflation) from the same employer in the prior calendar year, the catch-up contributions must be designated as Roth (after-tax) contributions starting in 2026.
- If your wages from the employer sponsoring the plan were under that threshold, you may still make catch-up contributions on the pre-tax basis if your plan allows, or you may elect Roth.
- It is important to note: If your plan does not currently offer a Roth option, and any employees are subject to this rule, they may not be able to make catch-up contributions in the traditional pre-tax manner.
Why It Matters
Tax implications now vs. later – Traditional pre-tax contributions reduce your taxable income now and are taxed on withdrawal; Roth contributions are made with after-tax dollars, grow tax-free, and withdraw tax-free (assuming qualified conditions). The shift means that for eligible higher-earnings catch-up participants, the upfront tax deduction will no longer apply.
Who Is Affected
Participants aged 50 or older (i.e., eligible for catch-up contributions) and whose FICA wages from the sponsoring employer exceeded the threshold (currently $150,000, indexed) in the prior calendar year.
- For participants under the threshold, the change does not force you into Roth for catch-up contributions, unless your plan declares Roth as the only option.
- Participants age 60-63 may also have an expanded “super catch-up” limit (i.e., a higher dollar limit for catch-up contributions) under SECURE 2.0.
If you or your employees are a high-earner (wages over ~$145K from the employer in the prior year) and are eligible for catch-up contributions in 2026, you’ll no longer have the option to make those extra contributions on a pre-tax basis. Instead, they must be made on a Roth (after-tax) basis. For many, this is simply a change in timing of taxation (now vs later), but it could affect tax planning and how much you choose to contribute.
2026 Contribution Limits
In addition to the Roth catch-up changes taking effect in 2026, the IRS has also announced higher retirement contribution limits due to inflation adjustments, giving participants more opportunity to save. For workplace retirement plans such as 401(k), 403(b), TSP, and most 457(b) plans, the standard elective deferral limit increases to $24,500, up from $23,500 in 2025.
Participants age 50 and older may contribute an additional $8,000 in catch-up contributions, while those ages 60–63 may be eligible for an enhanced “super catch-up” of $11,250 in certain plans. This allows total employee contributions of up to $32,500 for age 50+, or $35,750 for ages 60–63. The overall total plan limit (employee plus employer contributions) also increases to $72,000.
For Individual Retirement Accounts (IRAs), both Traditional and Roth, the annual contribution limit rises to $7,500, with an additional $1,100 catch-up contribution for those age 50 and older, allowing a total of $8,600. SIMPLE IRAs also see an increase, with the standard limit rising to $17,500, plus a $1,000 catch-up for participants age 50+.
These increases reflect IRS cost-of-living adjustments and provide greater flexibility for retirement planning heading into 2026.
We appreciate your attention to this update and want to make sure you are well-informed. If you have further questions or would like to make a 2026 action plan for your high earners, please contact FocusPay Solutions.
For more information on the above article or any human resource management services, contact Amber Cochran at (334) 321-4729 or by leaving us a message below.
Disclaimer:
FocusPay Solutions does not provide legal, tax, or accounting advice. This content is for general informational purposes only. For specific guidance regarding your payroll or tax situation, please consult with a licensed attorney, CPA, or tax advisor.
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