2026 Retirement Plan Limits: What the Mandatory Roth Catch-Up Means for Your Strategy
The IRS has released the 2026 contribution limits for retirement plans, and while most of the changes are incremental inflation adjustments, there's one significant shift that will affect every high-earning employee age 50 and older: mandatory Roth catch-up contributions.
If you earned more than $150,000 in FICA wages in 2025 and you're 50 or older, your catch-up contributions in 2026 must go into a Roth account. This isn't optional. It's not a choice between Roth or traditional. It's a requirement that will change the tax treatment of a portion of your retirement savings.
Let's break down what this means, who it affects, and how to plan for it.
What Changed
Previously, when you made catch-up contributions to your 401(k) or 403(b), you could choose whether those dollars went into a traditional (pre-tax) or Roth (after-tax) account. Most people defaulted to traditional contributions because it reduced their current year's taxable income.
Starting January 1, 2026, that choice disappears for higher earners. If your FICA wages in 2025 exceed $150,000, all of your catch-up contributions in 2026 must be designated as Roth contributions.
What This Actually Means
Roth contributions are made with after-tax dollars. You pay income tax on that money now, in the year you contribute it. In exchange, that money grows tax-free, and you pay no taxes when you withdraw it in retirement (assuming you follow the rules for qualified distributions).
Traditional contributions are made with pre-tax dollars. You get a tax deduction now, which reduces your current taxable income. But you'll pay ordinary income tax on every dollar you withdraw in retirement.
When catch-up contributions are forced into Roth accounts, you lose the immediate tax deduction. For someone in the 32% or 35% federal tax bracket, that's meaningful. A $7,500 catch-up contribution that would have saved you $2,400-$2,625 in federal taxes will now cost you that amount instead.
Who This Affects
This requirement applies if:
You're age 50 or older during 2026
Your FICA wages in 2025 exceeded $150,000
You make catch-up contributions to an employer-sponsored retirement plan (401(k), 403(b), governmental 457(b), or SIMPLE plan)
Important clarification: This is based on FICA wages, not total compensation. Stock options, bonuses, and certain other forms of compensation may or may not count depending on how they're structured. If you're close to the threshold, it's worth reviewing your 2025 W-2 carefully.
Why the IRS Made This Change
This was part of the SECURE 2.0 Act passed in 2022. The government is essentially requiring higher earners to pay taxes now rather than deferring them until retirement. From a revenue perspective, this accelerates tax collection. From a policy perspective, it's based on the assumption that higher earners can afford to pay tax now and will benefit from tax-free growth over time.
Complete 2026 Contribution Limits
Here's what you need to know about contribution limits across all major retirement account types for 2026:
401(k), 403(b), and Most 457 Plans
Standard contribution limit: $24,500 (up from $23,500 in 2025)
Catch-up contribution (age 50+): $7,500 (unchanged from 2025)
Total contribution limit if you're 50+: $32,000
Special catch-up for ages 60-63: $11,250 (this is new and applies to certain plan types)
If you're maxing out your employer plan, you should be contributing $24,500 next year. If you're 50 or older and subject to the Roth requirement, an additional $7,500 will go into your Roth account (and be taxable in 2026).
SIMPLE Plans
Standard contribution limit: $17,000 (up from $16,500 in 2025)
Catch-up contribution (age 50+): $3,500 (unchanged)
Total if you're 50+: $20,500
The Roth catch-up requirement applies to SIMPLE plans as well, though these plans are less common among Sierra's client base.
Traditional and Roth IRAs
Contribution limit: $7,500 (up from $7,000 in 2025)
Catch-up contribution (age 50+): $1,100 (up from $1,000 in 2025)
Total if you're 50+: $8,600
Note: IRA contributions are separate from your employer plan. You can max out both, though IRA deductibility may be limited if you're covered by an employer plan and your income exceeds certain thresholds.
Health Savings Accounts (HSAs)
Individual coverage: $4,400 (up from $4,300 in 2025)
Family coverage: $8,750 (up from $8,550 in 2025)
Catch-up contribution (age 55+): $1,000 (unchanged)
HSAs remain one of the most tax-efficient savings vehicles available—triple tax-advantaged with pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. If you have a high-deductible health plan, maximizing your HSA should be a priority.
Real-World Scenarios: How This Affects Different Clients
Scenario 1: High-Earning W-2 Employee
Profile: Age 52, earning $180,000 in W-2 wages, married filing jointly, currently contributing $23,500 to 401(k) with $7,500 traditional catch-up contribution.
2026 Impact:
Can contribute $24,500 standard (pre-tax)
Must contribute $7,500 catch-up as Roth (after-tax)
Previous tax savings from catch-up: ~$2,400 at 32% bracket
New tax cost: ~$2,400 in additional 2026 taxes
Planning consideration: This person needs to ensure they have the cash flow to absorb the extra $2,400 in taxes, or reduce their catch-up contribution if cash flow is tight. However, keeping the Roth contribution makes sense if they expect to be in the same or higher tax bracket in retirement.
Scenario 2: Business Owner with Variable Income
Profile: Age 55, business owner with $200,000 in W-2 wages from own company, historically made pre-tax catch-up contributions.
2026 Impact:
Catch-up contributions must be Roth
But as a business owner, may have access to profit-sharing contributions or defined benefit plans that aren't subject to this requirement
Can potentially shift strategy to maximize pre-tax contributions through employer profit-sharing
Planning consideration: Business owners should work with their advisors to optimize their retirement plan structure. The Roth catch-up requirement affects employee deferrals, but employer contributions can still be made on a pre-tax basis through profit-sharing or other qualified plan designs.
Scenario 3: Executive Just Under the Threshold
Profile: Age 51, executive with $148,000 in base salary, expects $15,000 bonus in December 2025.
2026 Impact:
2025 FICA wages: $163,000
Exceeds $150,000 threshold
2026 catch-up contributions must be Roth
Planning consideration: If this person wanted to avoid the Roth requirement, they needed to manage their 2025 income to stay under $150,000 in FICA wages. That ship has likely sailed by November. The lesson for 2026: if you're close to the threshold and want to preserve the traditional catch-up option, income timing matters.
Scenario 4: Couple Both Affected
Profile: Both age 53, each earning $170,000, both max out 401(k) contributions.
2026 Impact:
Combined, they'll have $15,000 in mandatory Roth catch-up contributions
At 32% federal bracket: ~$4,800 in additional taxes
Plus state taxes in most jurisdictions
Planning consideration: They need to ensure their cash flow can accommodate roughly $5,000-6,000 in additional tax liability, or reduce catch-up contributions. They should also review whether IRA contributions make sense (likely not deductible at their income level, but Roth IRA conversions might).
The Roth vs. Traditional Analysis
The mandatory nature of this change means you can't opt out if you're over the threshold. But it's worth understanding whether Roth contributions are actually beneficial for your situation.
When Mandatory Roth Catch-Up Works in Your Favor
You expect to be in the same or higher tax bracket in retirement. If you're currently in the 32% bracket and expect to withdraw money in the 32% bracket or higher in retirement, paying tax now is equivalent or better.
You have decades until retirement. The longer your money can grow tax-free, the more valuable the Roth treatment becomes. Tax-free compounding over 15-20 years is powerful.
You want to reduce future RMDs. Roth accounts aren't subject to required minimum distributions during your lifetime (as of current law). If you expect to have substantial traditional retirement accounts, adding Roth balance can give you more flexibility.
You want to leave tax-free money to heirs. Roth accounts pass to beneficiaries tax-free, which can be valuable for estate planning.
When It's Less Ideal
You expect to be in a significantly lower tax bracket in retirement. If you're currently in the 35% bracket but expect to be in the 22% bracket in retirement, paying tax now at the higher rate is costly.
You're close to retirement. If you're 50 and retiring at 55, you only get 5 years of tax-free growth. The benefit is less compelling than for someone with 20+ years until retirement.
You have cash flow constraints. If paying tax now on the contribution creates financial stress, you may need to reduce the contribution amount rather than forcing it.
You have significant pre-tax balances already. If 95% of your retirement savings is in traditional accounts, you're already committed to paying tax on most of your retirement income. The marginal benefit of Roth catch-up contributions is smaller.
What You Need to Do Before Year-End
Action 1: Verify Your 2025 FICA Wages
Pull your most recent paystub and calculate your year-to-date FICA wages. If you're close to $150,000, determine whether you'll exceed it by year-end. Remember, this is the 2025 number that determines your 2026 treatment.
If you're significantly over the threshold, no further analysis needed—you know you'll be subject to the Roth requirement in 2026.
If you're under the threshold, you have more flexibility in 2026 (though you may want to consider Roth contributions anyway).
Action 2: Review Your 2026 Contribution Election
Most employer plans allow you to adjust your contribution elections for the new year during open enrollment. Make sure your payroll deduction is set to hit the $24,500 standard limit.
If you're subject to the Roth catch-up requirement, confirm with your HR department or plan administrator that your catch-up contributions will be properly designated as Roth. Some employers may need to update their payroll systems to accommodate this change.
Action 3: Plan for the Tax Impact
If you've been making $7,500 in traditional catch-up contributions and getting a tax deduction, you need to plan for roughly $1,800-$2,600 in additional federal tax liability (depending on your bracket), plus state taxes.
Options to manage this:
Increase your withholding to cover the additional tax
Make estimated tax payments if you're self-employed
Reduce your catch-up contribution if the tax cost is prohibitive
Shift other spending or savings to accommodate the tax
Action 4: Consider Roth Conversions
If you're going to have Roth money anyway through mandatory catch-up contributions, this might be a good time to consider whether Roth conversions of existing traditional IRA or 401(k) balances make sense.
The analysis is complex and depends on your current tax rate, expected future rates, time horizon, and other factors. But if you're already paying tax on $7,500 of contributions, paying tax to convert another $20,000-50,000 might make sense in the right circumstances.
Action 5: Review Your Full Retirement Picture
This is a good opportunity to step back and look at your entire retirement strategy:
Are you on track for your retirement goals?
Do you have the right balance between taxable, tax-deferred, and tax-free accounts?
Are you maximizing all available contribution opportunities (employer match, HSA, IRA, etc.)?
Does your investment allocation still make sense?
Special Considerations for Business Owners
If you own your business and control your retirement plan, you have more flexibility than W-2 employees:
Profit-sharing contributions are not subject to the Roth catch-up requirement. You can still make substantial pre-tax employer contributions through profit-sharing.
Plan design matters. Safe harbor 401(k) plans, traditional 401(k) plans, and defined benefit plans all have different contribution limits and rules. This might be a good time to review whether your current plan design still serves you best.
Cash balance plans allow for much larger deductible contributions for older, highly-compensated owners. If you're looking to maximize pre-tax retirement contributions, this might be worth exploring.
Timing of compensation can be managed if you're drawing W-2 wages from your own company. However, FICA wages must be reasonable compensation for services performed, so there are limits to how much you can manipulate this.
The key insight: employee deferrals are subject to the Roth catch-up requirement, but employer contributions are not. Business owners should work with their advisors to optimize the mix.
What This Means for Your 2026 Tax Strategy
The mandatory Roth catch-up creates a few downstream tax planning considerations:
Your 2026 taxable income will be higher if you've been making traditional catch-up contributions. Plan accordingly with your withholding or estimated payments.
You may want to reduce other Roth conversions if you were planning to convert traditional IRA funds to Roth. You're already adding Roth money through the catch-up requirement, so additional conversions might push you into a higher bracket.
Charitable giving strategies might shift. If you typically bunch itemized deductions, the higher tax bill from Roth contributions might make itemizing more valuable in 2026.
State tax planning matters too. Most states tax Roth contributions the same way the federal government does (no deduction going in, no tax coming out). But a few states have different rules. Know how your state treats Roth contributions.
The Bottom Line
The mandatory Roth catch-up for high earners is the most significant structural change to retirement savings rules in recent years. It's not optional, it's not temporary, and it affects a substantial portion of retirement savers.
For most people subject to this requirement, Roth contributions are actually beneficial in the long run. The forced tax diversification creates flexibility in retirement, and tax-free growth over 10-20 years typically outweighs the upfront tax cost.
But the timing matters. You need to plan for the tax impact in 2026, verify that your employer's plan is set up correctly, and ensure this fits into your broader retirement strategy.
If you're not sure how this affects your situation, now is the time to review it. The window for 2025 income planning is closing, and you want to enter 2026 with a clear plan rather than scrambling in March when you see the tax bill.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.