August 2025
The passing of Secure Act 2.0 in 2022 continues to drive changes to qualified retirement plans. As we approach 2026, we are faced with navigating a significant change in the way salary deferral catch-up contributions are treated. Employees aged 50 and above are allowed to make catch-up contributions to their employer-sponsored retirement plans. For 2025, the standard contribution limit is $23,500, but those ‘catch-up eligible’ employees can add another $7,500, bringing their total limit to $31,000. Furthermore, individuals aged 60 to 63 can contribute an extra $11,250 instead of $7,500. (see insight for additional information pertaining to super catch-up)
Beginning in 2026, individuals who earned more than $145,000 in the previous year will be required to make their catch-up contributions to a Roth 401(k) account, meaning those contributions will be made with after-tax dollars and won’t reduce their taxable income. That said, withdrawals during retirement will be tax-free.
This new income-based rule will split age 50+ savers into two groups:
- Those who earned $145,000 or less in the prior year can continue to make catch-up contributions to their traditional pre-tax 401(k) accounts.
- Those who earned more than $145,000 the previous year must direct their catch-up contributions into a Roth 401(k), making them after-tax contributions.
Ahead of the January 1, 2026 effective date, consult with your payroll software provider to ensure compliance with the new regulation. Encourage plan participants to consult a trusted tax advisor and financial advisor to understand how this change influences their personal tax and retirement savings goals.
