By Marc C. Shaffer
If you are over age 50 and saving for retirement, catch-up contributions have long been a valuable way to put away a little extra. As of 2026, an important change under the SECURE 2.0 Act is now in effect, and it is beginning to impact many savers, especially business owners using an Individual 401(k) Retirement Plan.
At a glance:
- Some higher-income earners are now required to make catch-up contributions as Roth, after-tax contributions instead of traditional, pre-tax contributions.
Let’s walk through what this means in 2026, who it applies to, and what practical changes you may need to plan for.
A Quick Refresher: What Are Catch-Up Contributions?
Once you turn 50, the IRS allows you to contribute more than the standard annual employee 401(k) contribution limit. This additional amount is known as a catch-up contribution and is designed to help people accelerate retirement savings later in their working years.
Historically, catch-up contributions could be made on a pre-tax basis, reducing taxable income today and being taxed later when the funds were withdrawn in retirement.
Beginning in 2026, that tax treatment changes for certain higher-income earners.
The New Rule in 2026: Roth Catch-Ups for Higher Earners
Starting in 2026, catch-up contributions must be made as Roth contributions if your income exceeds a specific threshold. The key figure is $145,000, indexed for inflation. If your prior-year wages that were subject to FICA taxes exceeded this amount, your catch-up contributions can no longer be made on a pre-tax basis. Instead, those catch-up contributions must go into the Roth portion of your 401(k). While this eliminates the immediate tax deduction, the tradeoff is that qualified Roth withdrawals in retirement are tax-free.
How This Impacts Individual 401(k) Plans
This is where the rules become more detailed and where confusion is most common.
An Individual 401(k), also called a Solo 401(k), is designed for self-employed individuals with no employees other than a spouse. These plans allow for two types of contributions:
- Employee contributions, including catch-up contributions
- Employer contributions, often referred to as profit-sharing contributions
The Roth catch-up requirement applies only to employee catch-up contributions. Employer contributions are not affected by this rule and can still be made on a pre-tax basis. Whether this rule applies to you depends largely on how you are paid.
W-2 Business Owners Should Pay Close Attention
If you own an S Corporation and pay yourself W-2 wages, those wages are subject to FICA taxes. If your prior-year W-2 wages exceed the income threshold and you are age 50 or older, your catch-up contributions in 2026 must be made as Roth contributions. This rule applies even if you are the only participant in the Individual 401(k) plan.
Schedule C Filers May Have an Exception
If you are a sole proprietor filing Schedule C and you do not receive W-2 wages, the rule may not apply to you. The reason is that the law specifically looks at wages subject to FICA taxes, not total income. While self-employment income is subject to self-employment tax, it is not considered W-2 wages.
For many Schedule C business owners, this means catch-up contributions may still be permitted on a pre-tax basis under current guidance. This distinction alone makes it important to understand how your business is structured and how your retirement contributions are classified.
A Practical Change in 2026: Separate Accounts for Roth Catch-Ups
For clients who are required to make Roth catch-up contributions in 2026, there may be an additional administrative step.
In some cases, we may need to establish a second Individual 401(k) retirement plan account to properly separate Roth catch-up contributions from pre-tax contributions. Keeping these amounts separate is critical for accurate tax reporting and for correctly processing distributions in the future. If this applies to you, please be prepared for a potential delay while the new account is established. This is not unusual, but it does require additional setup time to ensure everything is handled correctly and remains compliant with IRS rules.
Is Losing the Deduction Really That Bad?
At first glance, being required to make Roth contributions can feel like a negative, particularly for higher earners who are used to receiving an immediate tax deduction.
However, Roth money offers several meaningful advantages:
- Tax-free growth
- Tax-free withdrawals in retirement
- No required minimum distributions during your lifetime
- Greater flexibility for estate and legacy planning
For many savers, this rule change simply shifts when taxes are paid rather than increasing the total tax burden over time. In fact, many people intentionally build both pre-tax and Roth savings to give themselves greater flexibility when managing taxes in retirement.
What Should You Do Next?
If you are age 50 or older and contributing to an Individual 401(k) in 2026, now is a good time to:
- Review how you are paid, including whether income is W-2 or self-employed
- Confirm that your plan allows for Roth contributions
- Be aware that a separate account may be required for Roth catch-up contributions
- Plan ahead for possible administrative delays if a new account must be established
- Coordinate with your CPA and financial planner before making assumptions
These changes do not mean you should stop saving or panic. They do mean that retirement planning continues to evolve, and thoughtful coordination matters more than ever.
Bottom Line
The Roth catch-up rule in 2026 represents a meaningful shift, but it does not change the most important principle. Consistently saving for retirement remains one of the best financial decisions you can make. If you are unsure how this applies to your situation, that is completely normal. The details matter and addressing them early can help avoid complications later.
Sources Available Upon Request