If you’re 50 or older and earning over $150,000, your retirement savings strategy is about to change whether you like it or not. Starting in 2026, you’ll lose the ability to make pre-tax catch-up contributions to your 401(k)—they’ll all be Roth, meaning you’ll pay taxes upfront. This transition could cost you thousands in take-home pay and fundamentally alter how you should approach retirement planning in your peak earning years.
Do You Have to Make Roth Catch-Up Contributions in 2026?
Whether you’re required to make Roth catch-up contributions in 2026 depends on a simple test: did you earn more than $150,000 in FICA wages during 2025? This threshold appears on your W-2 Box 3, not your total compensation or taxable income. If you exceeded it, all catch-up contributions—the standard $8,000 for ages 50+ or $11,250 super catch-up for ages 60-63—must go to Roth accounts. There’s no option for pre-tax treatment anymore.
FICA wages include salary, bonuses, and vested RSUs, but exclude partnership K-1 distributions. New hires in 2026 are exempt this year since they’d no 2025 wages from your current employer. This SECURE 2.0 rule considerably impacts contribution limits planning and requires understanding your specific wage structure.
How Does the $150,000 FICA Wage Threshold Work?
Understanding the $150,000 threshold starts with knowing exactly which wages count—and it’s simpler than you might think. Your retirement plan uses FICA wages from Box 3 of your W-2, not your total compensation. This is the same amount used to calculate Social Security taxes.
Here’s what matters: Your employer looks at your 2025 FICA wages to determine if you’re required to make Roth catch-up contributions in 2026. If you earned more than $150,000 in W-2 wages last year, all your catch-up contributions must go to a Roth account this year.
Your elective deferrals to the 401(k) don’t reduce FICA wages—the calculation happens before those deductions. Partnership distributions and non-W-2 income don’t count, only wages from your current employer matter.
What Must Employers Do to Stay Compliant This Year?
Employers face three immediate compliance priorities in 2026. As the plan sponsor, you’ll need to coordinate between your payroll provider and plan administration team to guarantee accurate identification of affected employees. Your payroll systems must flag participants who exceeded $150,000 in FICA wages during 2025.
Your action items include:
- Verify your recordkeeper has activated “Roth Catch-up Required” indicators for affected employees
- Ascertain catch-up contributions automatically flow to Roth accounts once participants hit the $24,500 deferral limit
- Deliver participant communications explaining the cash flow impact—employees will see smaller paychecks due to after-tax treatment
Document every compliance step you take throughout 2026. The IRS is treating this year as a reasonable good-faith compliance period, but you’ll still need evidence of your efforts when formal enforcement begins in 2027.
How Does the Cash Flow Impact Vary by Industry and Pay Structure?
Your cash flow impact depends heavily on where you work and how you’re paid. If you’re a high earner in tech, finance, or professional services, you’ll likely face the mandatory Roth catch-up requirement—affecting 50-80% of employees in these sectors.
Healthcare and manufacturing management see moderate impact (20-50%), while retail and hospitality see less (5-20%).
The immediate cost is significant for retirement savings. At combined 29% tax rates, an $8,000 Roth catch-up costs $2,320 more than pre-tax. At 47% rates, that jumps to $3,760.
Compensation structure matters too. Commissioned salespeople may fluctuate across the $150,000 threshold. December bonuses affect next year’s status.
Unlike Roth IRA contributions, partnership K-1 income doesn’t count—only W-2 FICA wages determine your eligibility for 401(k) plans.
What Should You Do if You Prefer Pre-Tax Retirement Savings?
If you’ve built your retirement strategy around pre-tax contributions, the mandatory Roth catch-up rule forces a difficult choice: accept the higher tax bill now or explore alternatives.
Your options:
- NQDC plans offer unlimited pre-tax deferrals beyond 401(k) limits, though they carry credit risk since your money isn’t protected in a trust
- Traditional IRA contributions remain available if you meet income limits, giving you $7,000 in pre-tax accounts for 2026 ($8,000 if 50+)
- Mega backdoor Roth lets you convert after-tax 401(k) contributions to Roth accounts, preserving some tax benefits while building tax-free retirement assets
Work with your tax advisor to redesign your tax strategy around these constraints. While losing pre-tax catch-ups hurts, long-term Roth advantages—no RMDs and tax-free withdrawals—may ultimately benefit your retirement plan.
Navigate the 2026 Roth Catch-Up Changes with Expert Guidance
The mandatory Roth catch-up requirement represents a fundamental shift in retirement planning for high earners. If you earned over $150,000 in FICA wages during 2025, your 2026 catch-up contributions must flow to Roth accounts—affecting your immediate cash flow and long-term retirement strategy. Employees should review their compensation structure to understand their status, while employers must ensure their plans correctly identify and process affected contributions during this critical transition year.
For employers navigating this compliance challenge or employees exploring alternatives like NQDC plans and mega backdoor Roth strategies, expert guidance makes the difference between costly errors and smooth implementation. Kona HR brings 20 years of specialized experience helping companies across industries manage complex 401(k) compliance requirements and sophisticated compensation structures.
Don’t let the 2026 transition year pass without ensuring full compliance. Contact Kona HR today for a comprehensive mid-year plan review, employee communication support, or strategic consultation on preserving tax advantages for your high-earning professionals. Our expertise in FICA wage calculations, controlled group rules, and partnership compensation structures ensures your organization meets every requirement while maximizing retirement benefits for your team.
