As we peer into the not-too-distant horizon of 2026, the forecasted changes to 401(k) contribution rules demand the attention of every plan sponsor, fiduciary, and serious saver. These aren’t cosmetic tweaks — they represent structural shifts. Ignore them at your peril.
The Big Move: A $1,000 Bump
According to industry projections, the standard employee elective deferral cap (the 402(g) limit) is expected to rise from $23,500 in 2025 to $24,500 in 2026. That’s not a radical jump, but in the world of retirement plan compliance, every dollar counts.
At the same time, catch-up contributions (for those age 50 or over) are likely to increase from $7,500 to $8,000. And for those in the 60–63 “super catch-up” bracket, we could see limits as high as $11,500 or even $12,000, depending on final inflation adjustments.
Combine those, and a 50+ participant may be able to contribute up to roughly $32,500, before employer matching or allocations come into play. Not bad, considering where we were just a few short years ago.
A Thornier Issue: The Roth Catch-Up Mandate for High Earners
Now, here’s where things get tricky. Beginning in 2026, catch-up contributions made by participants whose prior-year wages exceed $145,000 will be forced into Roth (after-tax) form — no more pre-tax deduction for those dollars. That’s a big deal for higher earners.
The change is a product of SECURE 2.0, meant to shift more retirement savings into after-tax, tax-free growth. The problem? Many plans still don’t have Roth 401(k) features in place. If your plan lacks a Roth option, high earners may be disqualified from making catch-up contributions entirely.
The threshold ($145,000) is indexed to inflation, so it may creep upward, but the reality remains: this rule will separate proactive plan sponsors from reactive ones.
What Plan Sponsors and Fiduciaries Must Do (Now)
1. Review and revise plan design. If your plan doesn’t already support Roth contributions, now is the time to enable it. Waiting until 2026 could create administrative chaos and angry participants.
2. Update communication and disclosure materials. Participants must understand that future catch-ups may be after-tax only. Surprises are for birthdays, not retirement deferrals.
3. Monitor compensation thresholds. $145,000 is the current cutoff, but it may change. Build flexibility into your payroll and recordkeeping processes.
4. Watch for IRS guidance. Expect final rules and clarifications later this year. The IRS may adjust definitions, timing, or implementation deadlines.
5. Document your process. Every fiduciary decision — including why you added or didn’t add Roth — should be documented. Litigation loves ambiguity.
6. Advise participants proactively. Those approaching 50 need to know how these changes impact them. Educate early and often — before the first paycheck of 2026.
Bottom Line
The projected 2026 limits may not be revolutionary, but the Roth catch-up shift for high earners is a game-changer. This isn’t just about a $1,000 bump — it’s about how plan sponsors manage communication, compliance, and participant trust.
As Lucille Bluth might say, “It’s going to be a hot mess.” The best fiduciaries will make sure it isn’t theirs.