Wealth Insights

Changing the retirement savings game

How new IRS rules on catch-up contributions are impacting high earners and business owners

In a retirement environment where costs and inflation remain high, careers often extend longer than in decades past. Catch-up contributions are an attractive opportunity for those looking to fortify their savings later in their careers. Designed for working individuals age 50 and older, catch-up contributions allow for larger contributions to tax-advantaged retirement accounts including 401(k)s and Individual Retirement Accounts (IRAs).

Catch-up contributions: A history

“First introduced as part of the Economic Growth and Tax Relief Reconciliation Act of 2001, these provisions offer those over the age of 50 an extended opportunity to boost long-term financial security,” notes John Chrispens IV, CFP®, CEPA®.

The catch-up contribution maximum for 401(k)s is currently $8,000 annually, providing savers the opportunity to contribute up to $32,500 in 2026. For IRAs, the catch-up contribution maximum is $1,100, allowing savers to contribute up to $8,600 in 2026.

Additional changes were enacted on January 1, 2025, when “Super” Catch-Up contribution provisions included in the SECURE 2.0 Act of 2022 became effective. This increased the contribution limit for workers aged 60-63 to $11,250. With this revision in place, those age 64 and older revert to the standard catch-up contribution maximum threshold.

“The good news for those turning 50 and 60 in a given year, you don’t have to wait until your birthday to be eligible for these expanded contributions,” says Chrispens. “Even if your birthday is on December 31, you are eligible to make catch-up contributions that year, so it is important to plan accordingly.”

Catch-up contributions: What’s new in 2026?

Beginning January 1, 2026, the previously delayed rule for catch-up contributions for high earners became effective, mandating these extra contributions to be made to after-tax basis Roth accounts. The IRS currently defines high earners as those who earned $150,000 or more in the previous tax year, a threshold based on Social Security (FICA) earnings.

“This rule effectively removes the tax break on catch-up contributions because they have to be made with after-tax dollars,” says Chrispens. “However, because they are made as Roth contributions, earnings on these contributions are tax-free upon distribution as long as the participant is age 59 ½ and the funds have been in the Roth source for at least five years.”

Some may wonder if making the Roth contributions first would be beneficial in capturing the tax-free growth earlier. Many tax professionals advise to fill that pre-tax bucket first to ensure that you do not ‘overload’ your Roth, thus missing the pre-tax advantage on the maximum allowable contributions outside of your Roth 401(k). But as always, it is important to consult with your relationship team and tailor a plan that fits your unique goals and financial situation.

Catch-up contributions: Impact on business owners

Businesses that sponsor 401(k), 403(b), or governmental 457(b) plans are required to offer a Roth option to employees. Business owners have until December 31, 2026, to amend company plans to remain compliant with the new rule. The IRS provided a two-year administrative transition period for compliance, but employers should strive for compliance as quickly as possible if they have not already amended their plans.

“If a company’s plan does not currently offer a Roth option, high-income employees age 50 and older will be unable to make any catch-up contributions starting in 2026,” notes Tanya Noletto, Relationship Consultant with Regions Institutional Services. “This year will be a bit of a transition year for many employers, and we expect to see some potential hiccups as businesses implement these new rules through payroll. It is important to talk with your relationship consultant as you navigate these changes.”

Noletto shares that business owners and leaders may want to explore offering employee education sessions on these changes so they are not caught off guard when their paychecks change in the latter part of this year with the shift from pre-tax contributions to Roth contributions.

There are a lot of benefits to catch-up contributions despite the loss of pre-tax status. In addition to continuing to build wealth now in a tax-free vehicle for the employee, the Roth 401(k) can also be passed on to beneficiaries in the future where it may continue that tax-free growth.

Talk to your Regions Wealth Advisor about:

• Retirement income planning to help you achieve your unique goals.
• How recent changes to Social Security may impact your retirement plans.