As of Jan 1, 2026, new Internal Revenue Service (IRS) rules require certain high-income earners to make their 401(k) catch-up contributions as Roth (after-tax) deferrals. This change may affect your retirement and tax planning. This article covers how catch-up contributions work, who is affected by the new rule, how your contributions switch to Roth, and how corrections are handled.
Catch-up contributions let participants age 50 and older contribute beyond the standard annual deferral limit for their 401(k) plan.
Age
Annual catch-up limit (2026)
Type
Ages 50 – 59
Up to $8,000
Standard catch-up limit
Ages 60 – 63
Up to $11,250
Enhanced catch-up limit
Ages 64+
Up to $8,000
Returns to standard limit
The standard IRS deferral limit is $24,500 for 2026. Catch-up limits may change each year based on IRS adjustments.
The Roth catch-up requirement only applies to participants who meet both of these conditions:
You are 50 or older during the calendar year
Your Federal Insurance Contributions Act (FICA) wages from 2025 were more than $150,000 (found in Box 3 of your W-2)
If you earned $150,000 or less in 2025 and you are eligible to make a catch-up contribution in 2026, you can choose pre-tax or Roth.
The $150,000 FICA wage threshold is usually evaluated for each employer separately. Your Gusto Retirement plan only looks at the FICA wages you earned from the employer sponsoring this plan. This is how we decide whether the Roth catch-up requirement applies to you.
For example: You earned $80,000 through one employer and $80,000 through another in 2025. Even though your combined wages were more than $150,000, neither employer's plan would need to treat your catch-up contributions as Roth.
Your plan administrator needs to make sure your contributions follow the new Roth catch-up rules.
If the Roth catch-up rules apply to you and you chose to make all or part of your deferrals pre-tax, the system will manage the switch automatically:
You will keep making pre-tax deferrals until you reach the standard annual deferral limit ($24,500 for 2026)
Once you reach the standard limit with pre-tax deferrals, all later deferrals switch to Roth (after-tax). This keeps you contributing to your 401(k) without interruption
For example: You are 55 and earned $160,000 in FICA wages in 2025, so the catch-up rule applies to you. You choose a 10% pre-tax deferral rate for 2026.
Your contributions are made as pre-tax until you reach the $24,500 limit for 2026
After that, your deferrals switch to Roth until you reach your catch-up limit
If you do not want any of your deferrals to be Roth contributions, you can reduce your contribution percentage to zero once you reach your annual deferral limit.
Important: If the Roth catch-up rules apply to you and you are a highly compensated employee (HCE), you may have catch-up contributions even if you do not contribute up to the annual deferral limit. In some cases, your regular deferrals may be recategorized as catch-up contributions to pass non-discrimination testing. If this happens, a correction may be needed (described below).
Roth catch-up contributions are made with after-tax dollars. You will not get a tax deduction now. But future withdrawals may be tax-free if they meet the requirements to be a qualified Roth distribution.
A correction may be needed if a high-wage earner subject to the requirement does not have enough Roth deferrals to cover their catch-up contributions. This can happen for 2 reasons:
The participant went over the annual deferral limit
A testing correction is needed
There are 2 methods of correction used for deemed contributions:
W-2 amendment
Recategorizing the pre-tax deferral to a Roth deferral and issuing a 1099-R (in-plan Roth rollover method)
In either case, the assets will move from the pre-tax deferral to the Roth deferral account under the plan.
Correction method
When it is used
What happens
W-2 amendment
If the W-2 has not yet been issued
The plan adjusts the participant's W-2 form to recategorize the pre-tax contribution as a Roth contribution before the form is issued
In-plan Roth rollover
If the W-2 has already been issued
A Form 1099-R will be issued early in the following year to reflect the recategorization of the funds
These changes may affect your overall retirement and tax planning. Consider talking to a qualified financial or tax advisor to understand how this rule may affect your personal situation.
This information is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal, and/or financial advice that considers all relevant facts and circumstances. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein.