Changes to retirement plan catch-up contributions in 2026

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The IRS has issued final regulations implementing SECURE 2.0 Act provisions that change how catch-up contributions work in employer-sponsored retirement plans. Beginning in 2026, certain higher-income employees will be required to make these contributions on an after-tax Roth basis instead of pre-tax.

Who is impacted

The new rules will affect how eligible employees make catch-up contributions—and require employers to update their systems and plans to remain compliant.

Employees affected by the rule

Starting January 1, 2026, employees 50 and older whose FICA wages exceeded $145,000 in the prior calendar year—an amount subject to annual inflation adjustments—will no longer be able to make pretax catch-up contributions to 401(k), 403(b) and 457(b) plans. Instead, their catch-up contributions must be made as after-tax Roth contributions.

As a result, these employees may face increased tax liabilities because Roth contributions don't reduce taxable income like pretax deductions do.

Employer compliance requirements

To comply with the SECURE 2.0 Act, plans that allow catch-up contributions should adhere to the following stipulations:

• Add or maintain a Roth contribution option to allow higher-income employees to continue making catch-up contributions. Plans without a Roth feature remain compliant under IRS universal-availability rules, but employees earning more than $145,000 in the prior year won't be able to make catch-up contributions until a Roth option is added.
• Update administrative and payroll systems to identify affected employees, ensure contributions are correctly processed as after-tax contributions and follow IRS guidance if adjustments are needed.
• Allow participants of 401(k), 403(b) and 457(b) plans to contribute. Traditional and SIMPLE IRAs, Salary Reduction Simplified Employee Pension, or SARSEP, plans, Starter 401(k)s, and Safe Harbor 403(b) plans don't qualify.
• Aggregate employees' compensation across related entities to reach the $145,000 threshold if the business is an affiliated, multi-entity company.

What action is required and when

Recommended actions for employees

Before the new rule takes effect in January 2026, consider maximizing your pretax catch-up contributions in 2025 while they're still available. Confirm whether your employer offers a Roth option so you can plan your retirement contributions and savings accordingly. If your employer doesn't offer a Roth option, there's a slim window for individuals earning up to $165,000 modified adjusted gross income—$200,000 for married filing jointly—to contribute to a Roth IRA on their own.

Employer compliance timeline

Although the new Roth catch-up rule takes effect January 1, 2026, the IRS will allow employers to make a reasonable, good-faith effort to comply during the first year before the final regulations take full effect in 2027.

To remain compliant, employers should:

• Ensure operational readiness by January 1, 2026.
• Formally amend plan documents by December 31, 2026.

Who to talk to now

Because these new retirement plan regulations could affect both your taxable income and long-term savings strategy, it's wise to consult a tax professional familiar with all SECURE 2.0 Act provisions.

For more information, see the IRS release on the new Roth catch-up contribution rules or speak with your First Citizens Wealth Consultant.