If you are 50 or older and earned more than $150,000 in wages in 2025, your 401(k) catch-up contributions work differently starting this year. A new rule under the SECURE 2.0 Act requires that those contributions be made on a Roth (after-tax) basis — not pre-tax as they may have been in prior years.
This article explains exactly what changed, whether it applies to you, and what steps you or your plan sponsor may need to take.
What Is a Catch-Up Contribution?
Every year, the IRS sets a limit on how much you can contribute to your 401(k). For 2026, that standard limit is $24,500. Workers who are age 50 or older are allowed to contribute additional “catch-up” money on top of that limit — an extra $8,000 per year, or up to $11,250 if you are between ages 60 and 63.
Catch-up contributions have always been a valuable tool for people who are closer to retirement and want to save more. Until now, those extra contributions could go in pre-tax, reducing your taxable income today. That has changed for higher earners starting in 2026.
What Changed in 2026?
Under the new rule, if you earned more than $150,000 in FICA wages (the Social Security wages shown in Box 3 of your W-2) from your business in 2025, your catch-up contributions in 2026 must be made as Roth contributions.
Roth contributions are made after tax. You do not get a tax deduction today, but the money grows tax-free and when you take it out in retirement you pay no taxes on it.
| Key Rule Your 2026 status is based on what you earned in 2025 — not what you earn this year. Even if your income dropped in 2026, if your 2025 W-2 Box 3 wages were above $150,000, the Roth requirement applies to you for all of 2026. |
Does This Apply to You?
You are subject to the Roth catch-up requirement if both of the following are true:
• You are age 50 or older by December 31, 2026
• Your W-2 Box 3 (FICA / Social Security wages) from your employer exceeded $150,000 in 2025
If both conditions apply, any catch-up contributions you make in 2026 must go into a Roth account.
Who Is Exempt?
Not everyone is affected. You are not subject to this rule if:
- Your 2025 FICA wages were $150,000 or below — you can continue making pre-tax catch-up contributions
- You are a sole proprietor or partner in a partnership. The rule specifically requires FICA wages.
- You had no wages from your current employer in 2025 (for example, you were a new hire who started in January 2026)
| Important — S-Corp and C-Corp Owners If you pay yourself a W-2 salary through your S-Corp or C-Corp and those wages exceeded $150,000 in 2025, you are NOT exempt. S-Corp or C-Corp owner-employees above the wage threshold are subject to the Roth catch-up requirement just like any other W-2 employee. |
2026 Contribution Limits at a Glance
| Contribution Type | Age Group | 2026 Limit |
| Standard elective deferral | All participants | $24,500 |
| Catch-up contribution | Age 50–59 and 64+ | $8,000 |
| Super catch-up contribution | Age 60–63 | $11,250 |
| Maximum total (age 50–59 or 64+) | Age 50–59 and 64+ | $32,500 |
| Maximum total (super catch-up) | Age 60–63 | $35,750 |
The standard $24,500 deferral limit is not affected by this rule. High earners can still contribute up to $24,500 on a pre-tax basis — only the catch-up portion above that limit must be Roth.
What Does “Roth” Mean in Practice?
Here is the simple breakdown:
• Pre-tax contributions reduce your taxable income today, but you pay taxes when you withdraw the money in retirement.
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• Roth contributions are made after you have already paid taxes, so there is no deduction today. But the money grows tax-free and qualified withdrawals in retirement are also tax-free.
Whether Roth is “better” depends on your situation — specifically, whether you expect your tax rate in retirement to be higher or lower than it is today. For many higher earners, having some tax-free retirement income is a meaningful advantage.
One important note: if your plan does not offer a Roth option and you are subject to this rule, you cannot make any catch-up contributions at all until the plan is updated. This means potentially losing $8,000 to $11,250 in annual retirement savings. Plan sponsors should confirm their plan is ready.
Your Options
If this rule applies to you, there are two straightforward paths:
• Option 1: Make your catch-up contributions as Roth. You will pay tax on this money now, but it will grow and come out tax-free in retirement.
• Option 2: Contribute only up to the standard $24,500 limit and skip the catch-up. No Roth account needed, but you give up $8,000 to $11,250 in additional tax-advantaged savings per year.
What Plan Sponsors Need to Do
If you are a business owner or plan administrator, here is your checklist:
Is a Cash Balance or Defined Benefit Plan Right For You?
• Confirm your plan allows Roth contributions. If it does not, a plan amendment is required before affected participants can make catch-up contributions. This amendment must be adopted by December 31, 2026.
• Identify affected employees. Review 2025 W-2 Box 3 wages for all participants age 50 and older. Anyone above $150,000 is subject to the rule this year.
• Set up Roth accounts for applicable participants through your custodian before Roth deferrals can be processed.
• Update payroll. Your payroll system needs to split standard pre-tax deferrals from Roth catch-up contributions and withhold income taxes on the Roth portion.
• Communicate the change to your employees. High earners need to know their catch-up contributions are now after-tax and may need to update their deferral elections.
• Repeat the determination every year. A participant’s high-earner status is reassessed annually based on the prior year’s FICA wages. It can change from year to year.
How Emparion Can Help
If you have an Emparion 401(k) plan document, no amendment is needed. Your plan already supports Roth contributions.
For clients whose plan document is held with another provider, amendments may be required. We have setup guides and resources available — reach out and we will point you in the right direction.
