Employer Sponsored Retirement Plan Changes for 2026
Defined contribution plans, also known as 401(k) or 403(b) plans, are employer sponsored retirement plans that allow employees to contribute and save for retirement. In many cases, these plans are one of the most powerful wealth building vehicles available, especially if your employer offers a matching contribution.
Why invest in a employer sponsored retirement plan?
These plans offer some of the highest contribution limits and can include employer matching contributions. The matching contributions are considered “free-money”, meaning there is no cost to the employee.
Various plans are also widely accessible, as about 70% of private sector employees have access to a retirement plan.
In 2025, a record 650,000 Americans reached 401(k) millionaire status. That’s up from 544,000 just a year prior.
Contribution Limit Increases (Under 50)
2026 Limit: $24,500
Total Combined Annual Limit: $72,000
To understand how you could potentially invest up to the combined annual limit, please see Sr. Financial Advisor Joe Gauvin’s article on Mega Back Door Roth Conversions here.
Catch-Up Contributions (Above 50)
Workers age 50 and older may contribute an additional $8,000, bringing their total potential contribution to $32,500.
Additionally, workers ages 60-63 may contribute a super catch-up of $11,250 (an addition of $3,250 on top of the $8,000).
New Roth After-Tax Rule
Beginning in 2026, an important change takes effect under Secure 2.0. Workers age 50 and older who earned more than $150,000 in FICA wages in prior year must make catch-up contributions to a Roth 401(k), meaning they are after-tax and not deductible. However, this allows for an advantage of tax-free growth on all earnings in the Roth portion.
Real Life Example:
Consider a 55-year-old earning $200,000 per year.
In 2025, the employee contributes the maximum $23,500 salary deferral along with the $7,500 catch-up contribution. If both contributions are made on a pre-tax basis, their taxable income is reduced to $169,000.
In 2026, the same employee contributes the new $24,500 salary deferral limit. However, the $8,000 catch-up contribution must be made as a Roth (after-tax) contribution. As a result, only the $24,500 salary deferral reduces taxable income, bringing taxable income to $175,500 - higher than the previous year.
While this may initially seem disadvantageous, Roth contributions offer tax-free growth and tax-free withdrawals in retirement, which can be valuable depending on an individual’s long-term tax situation.
As you can see, these rule changes can add complexity to retirement planning. Because of this, it’s important to speak with your financial advisor to determine the most effective tax strategy for your situation.
Action Steps:
1) Speak with your financial advisor to discuss income tax and retirement planning strategies.
2) Adjust your payroll contributions to reflect these new rules.
3) Review your broader tax planning strategy to ensure it aligns with your long-term goals.
If you haven’t reviewed your contributions or portfolio allocation recently, this is a great opportunity to do so. Reach out to schedule a meeting so we can ensure your retirement strategy is positioned to support the life you want to build.
Disclosure: This material is provided for informational and educational purposes only and is not intended as, and should not be construed to be, legal, tax, or investment advice. The information contained herein is based on current laws, regulations, and other data available at the time of publication, all of which are subject to change without notice. You should consult with qualified legal, tax, and financial professionals before making any decisions based on this content. Stonehearth Capital Management, LLC is a registered investment adviser. Registration does not imply any level of skill or training.