The first payrolls of 2026 are being processed right now, and for many employees age 50 and older, this year’s retirement contributions may look different than expected. A long‑anticipated SECURE 2.0 rule has finally taken effect — and it changes how certain contributions must be handled.
This is the year where the IRS stops talking about the rule and starts enforcing it. And as with any major compliance shift, the details matter.
A New Year, a New Set of Rules
Every January brings updated contribution limits, but 2026 introduces something more significant: the first operational year of the Roth‑only catch‑up requirement for high‑income earners.
Here’s the part most people miss:
This rule was delayed for years, misunderstood by many, and is now fully in force.
Employers who don’t implement it correctly from the first payroll cycle risk misclassified contributions, employee confusion, and plan‑level compliance issues.
Contribution Limits Increased for 2026
The IRS raised the annual contribution limits for workplace plans and IRAs. Employees can now defer more into their retirement accounts, whether pre‑tax or Roth. These increases follow the standard cost‑of‑living adjustments and apply across the board.
In short:
Employees can contribute more in 2026 than they could in 2025 — a welcome change for anyone focused on long‑term savings.
2026 Employee Deferral and Catch‑Up Limits
The IRS increased the contribution limits for workplace retirement plans in 2026. These limits apply to all employee deferrals, whether pre‑tax or Roth.
Employee Elective Deferrals (All Employees)
- 2026 limit: $24,500
Standard Catch‑Up Contributions (Age 50+)
- 2026 catch‑up limit: $8,000
Enhanced “Super” Catch‑Up (Ages 60–63)
- 2026 super catch‑up limit: $11,250
- Available only if the plan adopts this provision
- Subject to the same Roth‑only rule for high‑income earners
Key Rule for 2026
Employees age 50+ who earned more than $150,000 in FICA wages in 2025 must make all catch‑up contributions (including super catch‑up) as Roth.
Regular deferrals are unchanged and may still be pre‑tax or Roth for all employees.
Plan Requirement
Plans must offer Roth deferrals to accept any catch‑up contributions from high‑income employees in 2026.
The Big Change: Roth‑Only Catch‑Up Contributions for High Earners
Beginning January 1, 2026, employees age 50 or older who earned more than $150,000 in Social Security (FICA) wages in 2025 must make all of their 2026 catch‑up contributions as Roth.
Think of the rule like a gate:
Once an employee crosses the $150,000 threshold, the only path for catch‑up contributions is Roth.
A real‑world example
- An employee who earned $152,000 in FICA wages in 2025 must make all 2026 catch‑up contributions as Roth.
- An employee who earned $148,000 may choose either pre‑tax or Roth.
Why the IRS structured it this way
The IRS chose prior‑year FICA wages because:
- They’re objective and verifiable
- They avoid manipulation through elective deferrals
- They create a uniform standard across employers
This is a compliance‑friendly threshold — but only if payroll systems are configured correctly.
Bottom line:
2025 wages determine whether 2026 catch‑up contributions must be Roth.
Why This Matters Financially
For many employees, this change will reduce take‑home pay if they previously used pre‑tax catch‑up contributions. But it also increases tax‑free retirement growth — a tradeoff that becomes more valuable the closer someone gets to retirement.
Regular Employee Deferrals Are Unchanged
Despite the new rule, regular elective deferrals remain unchanged. Employees of any age and income level may continue choosing pre‑tax or Roth for their standard contributions.
Takeaway:
Only catch‑up contributions are affected by the income rule — not regular deferrals.
Plans Must Offer Roth to Allow Catch‑Up Contributions
If a retirement plan does not offer Roth deferrals, it cannot accept catch‑up contributions from high‑income employees in 2026.
Here’s where things get interesting:
We’ve already seen employers assume they can “add Roth later,” only to discover that their plan cannot legally accept catch‑up contributions until Roth is implemented.
In short:
No Roth option means no catch‑up contributions for high earners.
New 1099-R Reporting Requirement for Roth Employer Contributions
Beginning in 2024, if your company’s retirement plan allows employees to receive employer matching or nonelective contributions as Roth (after-tax) contributions, there is a new IRS reporting obligation you must not overlook. Under recent IRS guidance (Notice 2024-2), any designated Roth employer contributions allocated to an employee’s account must be reported on Form 1099-R for the year the contribution is made—even though the employee has not taken a distribution. The full amount of these Roth employer contributions is taxable to the employee in the year allocated and must be reported in boxes 1 and 2a of Form 1099-R, using code “G” in box 7. This requirement applies to 401(k), 401(a), and 403(b) plans that permit Roth employer contributions, and only fully vested contributions are eligible.
It is critical for business owners to coordinate with their plan administrator and payroll provider to ensure this reporting is handled correctly, as failure to issue Form 1099-R can result in compliance issues and IRS penalties. Confirm that your plan’s systems are updated to identify and report Roth employer contributions, and communicate this change to affected employees so they understand the tax impact. Proper implementation of this new reporting rule is essential for maintaining plan compliance and avoiding costly errors.
How 2026 Differs From 2025
The shift from 2025 to 2026 can be understood simply:
- In 2025, all employees age 50+ could choose pre‑tax or Roth for catch‑up contributions.
- In 2026, high‑income earners must use Roth for catch‑up contributions.
- Regular deferrals remain unchanged.
- Plans must now offer Roth if they want to allow catch‑up contributions.
- Contribution limits increased for both regular and catch‑up contributions.
The key difference:
2026 is the first year income determines how catch‑up contributions must be funded.
Who Is Affected by the New Rule?
This rule applies to:
- Employees age 50 or older
- Who earned more than $150,000 in FICA wages in 2025
- And who want to make catch‑up contributions in 2026
It does not apply to:
- Regular deferrals
- Employees under age 50
- Employees with $150,000 or less in 2025 FICA wages
- Household income or joint filers
Important nuance:
The rule is based on individual W‑2 FICA wages, not total compensation or tax return income.
Technical Insight: Why FICA Wages Matter
The $150,000 threshold is based strictly on Social Security wages, not:
- Box 1 wages
- Total compensation
- Household income
- AGI
- Filing status
This distinction matters because:
- FICA wages exclude pre‑tax health premiums
- FICA wages include certain taxable benefits
- FICA wages are employer‑specific
We’ve already seen employers misapply this rule by using Box 1 wages or total compensation — both of which will lead to incorrect catch‑up coding.
Common Mistakes We Expect to See in Early 2026
Based on prior regulatory transitions, here are the errors most likely to surface:
- Misidentifying the FICA wage threshold
- Applying the rule to regular deferrals instead of catch‑up contributions
- Allowing pre‑tax catch‑up contributions for high earners
- Forgetting to enable Roth in the plan
- Incorrectly assuming joint income matters
- Misclassifying employees with multiple employers
- Failing to communicate the change to employees
These are the kinds of issues that create audit exposure and employee frustration — and they’re all preventable.
What We’re Already Seeing in 2026
Even in the first payroll cycle of the year, we’ve seen:
- Employers unsure whether their payroll system is reading the correct wage field
- Employees surprised by reduced take‑home pay
- Plans that still haven’t added Roth deferrals
- HR teams unclear on how to communicate the change
This early‑year confusion is exactly why expert guidance matters.
Forward‑Looking Guidance
While 2026 is the first enforcement year, this rule will continue to evolve. We expect additional IRS clarifications on:
- Recharacterization procedures
- Multi‑employer wage aggregation
- Treatment of rehired employees
- Corrective actions for mis‑coded contributions
Employers should treat 2026 as the beginning of a multi‑year compliance cycle, not a one‑time update.
Our Recommendation
We strongly recommend that employers:
- Review 2025 FICA wage data before the second payroll cycle
- Confirm Roth deferrals are fully enabled in both the plan and payroll system
- Communicate clearly with employees who will see a change in their take‑home pay
These steps reduce compliance risk and ensure a smooth transition.
The Bottom Line
2026 marks the first year the SECURE 2.0 Roth catch‑up mandate is fully in effect. The rule is straightforward, but the implementation is not. Employers must ensure their payroll systems, plan documents, and employee communications are aligned with the new requirements.
We’ve guided employers through every major retirement plan change of the last two decades. If you want to ensure your 2026 payroll and plan operations are fully compliant, we’re here to help you navigate the transition with confidence.