A provision of SECURE 2.0 that was delayed twice took effect this year. Beginning in 2026, catch-up contributions made by higher-earning participants in 401(k), 403(b), and governmental 457(b) plans must be designated as Roth contributions. For affected employees, a contribution that previously reduced current-year taxable income no longer does.
The 2026 Limits
The standard elective deferral limit for 401(k), 403(b), and governmental 457(b) plans is $24,500 for 2026, increased from $23,500. Participants aged 50 and older may contribute an additional $8,000, bringing their total to $32,500.
A larger catch-up applies to participants who reach age 60, 61, 62, or 63 during the year. That amount is $11,250 for 2026, unchanged from the prior year, allowing a total deferral of $35,750. The higher limit does not apply from age 64 onward, at which point the standard catch-up resumes.
Who the Roth Requirement Applies To
The requirement is based on prior-year wages from the employer sponsoring the plan. For 2026, it applies to participants whose 2025 Social Security wages from that employer exceeded $150,000, as reported in Box 3 of Form W-2. The threshold was increased from $145,000 and is adjusted annually for inflation.
Two features of this test are worth noting. It looks to wages from the sponsoring employer, not total household income, so an employee below the threshold at one employer is unaffected regardless of other income. And it uses Social Security wages specifically, which excludes certain items included in gross compensation.
Self-employed individuals without W-2 wages from the plan sponsor fall outside the requirement, as do participants in SIMPLE plans and SEP arrangements.
What Changed for Plan Sponsors
Plans without a designated Roth option faced a choice for 2026: add one, or stop permitting catch-up contributions from affected participants. An employee subject to the requirement whose plan offers no Roth option cannot make catch-up contributions at all.
Many sponsors adopted a deemed election approach, under which catch-up contributions from affected employees are automatically treated as Roth unless the employee opts out of making catch-up contributions entirely. Employees who assumed their elections carried over unchanged may find contributions being treated differently than expected.
The Tax Effect
A Roth catch-up contribution does not reduce current-year taxable income. For an employee aged 50 or older previously contributing $8,000 pretax, taxable income for 2026 is $8,000 higher than it would have been under the old rules, assuming the same contribution.
That increase can extend beyond the marginal rate on the additional income. Higher adjusted gross income can reduce or eliminate benefits subject to income-based phase-outs, affect the taxable portion of Social Security benefits, influence Medicare premium surcharges determined on a two-year lookback, and in some cases move income into a higher bracket.
The offsetting consideration is that Roth contributions and their earnings are generally distributed tax-free in retirement, subject to the five-year rule and other qualification requirements. Whether that trade favors the participant depends largely on expected retirement bracket relative to the current one, which is a projection rather than a known figure.
What to Confirm
Affected participants should verify three things with their employer or plan administrator: whether the plan offers a designated Roth option, how catch-up contributions are currently being characterized, and whether a deemed election is in place.
Where the requirement applies, the planning question is no longer whether to make catch-up contributions pretax, but how the resulting increase in taxable income interacts with the rest of the return.
Verma Tax can model the effect on your 2026 tax position and coordinate it with your broader planning. Contact us to review how the change applies to your situation.