Key Points Covered in this Podcast:
- Starting in 2026, 401(k) catch-up contributions for employees aged 50+ earning over $150,000 must be made as after-tax Roth contributions.
- Plan sponsors must amend their retirement plans to include a Roth option if they want high-earning employees to continue making catch-up contributions.
- New participants in retirement plans after 2025 must receive their first statement via paper delivery before opting into electronic statements.
- Employers should consider working with a record keeper or third-party administrator to navigate the complex new compliance and administrative requirements.
If you are over the age of 50 and you have an earned income of more than $150,000 last year, how you’re able to do catch-up contributions is going to change in 2026, and you need to be aware of that.
Transcript
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Welcome to the Your Life Your Wealth Network, helping you find clarity and comfort for your life and wealth.
John Walker
Hey, welcome to the Your Life Your Wealth podcast. I’m John Walker, Regional Vice pPresident at Mercer Advisors. Always a pleasure to be with you and I have an important topic to discuss today because whether you are a plan participant or a plan sponsor of any type of employer retirement plan, there are some really key new provisions that are taking place as a part of the Secure 2.0 Act that are into effect here in 2026. And so, we thought it was really, really important to share some practical advice, whether you are, as I said, a participant, a plan sponsor, or even advisor that is helping families navigate this. There’s some really critically important new rules that you need to be aware of. And to help me have that topic are two awesome guests, friends of mine and co-workers here at Mercer Advisors, Dennis Jablonoski and Jaron Carmichael from our retirement plan group. Jaron and Dennis, thanks for joining me today.
Jaron Carmichael
John, thank you for having us. Happy to be here.
Dennis Jablonoski
Yeah, John, thanks. Always a pleasure to be here with you.
John Walker
And so I think I got that right, boys, but I’m gonna turn to you for really, you know, more expertise on this. But I, you know, maybe we just briefly touch on Secure Act 2.0, Jaron, and when it went into effect, and then we’ll dive in a little more around specific things that people need to be aware of here in 2026.
Jaron Carmichael
Sure, happy to do so. Secure 2.0 went into effect a few years ago, and it implements a lot of changes for retirement plan sponsors and for participants in retirement plans. They were all geared towards helping more Americans to save more, to have a better, more successful retirement. And so what we have this year for 2026 are some of those provisions now taking into effect. That passed years ago, but now it’s time for them to become effective in 2026. The most substantial of those is the requirement for mandatory Roth catch-up contributions for certain employees.
John Walker
That seems pretty important when you use the word mandatory, Jaron, that seems pretty important to me, and I don’t think it’s something that everybody is particularly aware of, whether you’re a plan participant or a plan sponsor.
Jaron Carmichael
That’s right. So before this change took place, your retirement plan might have a provision that allows employees who are 50 or older to make what we call catch-up contributions. So in every 401(k) plan, every profit sharing plan, 403b plan, governmental 457 plan, there’s a limit that’s set by the government that says how much you’re allowed to contribute to your plan each calendar year. And for 2026, that regular limit is $24,500. The catch-up contribution is under the assumption that maybe you didn’t save as much as you planned to in your younger years. You’re now getting closer to retirement, and they want to allow you to put even more of a boost into your retirement plan for those final years to try to catch up and have adequate savings when you go to retire.
So at age 50, you’re allowed to put in an amount above that regular $24,500 limit. To date, you can mix up that $24,500 between pre-tax deferrals and Roth after-tax deferrals as much as you want as long as the total of those pre-tax and Roth contributions is $24,500. If you’re 50 years old, that limit goes up by an additional $8,000. And there’s an enhanced catch-up where if you’re between the ages of 60 to 63, you can put an additional $11,250 in as catch-up contributions. Prior to 2026, those catch-up contributions could be pre-tax or they could be Roth. What the new rule is, is that those catch-up amounts above $24,500 can no longer be pre-tax. They have to be subject to taxation as it’s earned. And then they go into the plan as a Roth contribution.
John Walker
That’s a major shift, right? That’s a significant change for both employees and I’d imagine for plan sponsors who may not have legislated for this, may not be prepared for this, may not have these things in place. Is that a fair characterization?
Jaron Carmichael
It is a significant change because it impacts the taxes in 2026 as they’re earned. Now we should back up and say this doesn’t apply to everybody who’s 50 years old. There is an income hurdle to meet before this rule applies to you, and that income hurdle is $150,000 for this year. So if you are working and you made $150,000 in 2025, then this rule applies to you in 2026, and that $150,000 line will be indexed for inflation, so we’ll see that amount change over the years, but that’s what it is for 2026.
John Walker
And so, as you said, Jaron, that’s a shift. And it matters, right? It matters when it comes to tax planning for higher-income participants. And I’d imagine it creates some new compliance requirements for plans themselves to operationally be able to do this. And Dennis, I know that’s the work that your group often does when they’re helping folks navigate this. I would imagine, what happens if your employer doesn’t have a Roth option available to you?
Dennis Jablonoski
Well, John, in that case, what we do is we’ll talk about having an amendment to the plan, meaning that you have to go in and amend the documents to state the fact that we now have the ability to offer Roth contributions. Not all plans offer Roth contributions, although in our opinion we believe they should be, but it’s not about our opinion. It’s about what the laws say. And that’s what we do. We come in and partner with plan sponsors and employers and business owners to help them navigate through these changes in our world. Retirement plans are always evolving and moving forward, and this is just the latest revision. And a lot of changes that have been pretty substantial in the last three to five years since COVID.
John Walker
And Jaron, what happens if a plan doesn’t have a Roth option for these employees that are in this category?
Jaron Carmichael
And if a plan doesn’t have a Roth option and they still offer catch-up contributions, then they cannot make catch-up contributions if you are a $150,000 wage earner or more. So simply just, it’s cut off at that limit of $24,500 until the plan is amended, as Dennis said, to add Roth into the plan.
John Walker
And so for our listeners, you know, that may fall into one of these categories either as a plan participant or if you are a sponsor of an employer plan, this is really important for you to be aware of, right? If you’re a higher-income earner, you might wanna go back to your HR or your plan and find out, is this something that I’m eligible for? Do we have this opportunity? And if not, make them aware of it because it may limit your ability to make catch-up contributions. And if you are the sponsor, and this is something that is important to the plan and that you’d like to offer to your higher income earning employees, it’s really important that you go in and do some review and maybe work with a team like ours or whoever is your plan sponsor to maybe do some revisions.
There was another requirement added for this year around paper statements, and I think this one really caught people off guard. Jaron, I don’t know that I completely understand the rule. Maybe you could just start by defining it. Maybe then we can figure out what it means to the folks that are listening.
Jaron Carmichael
Sure. Well, there’s a trend towards going paperless, right? Nobody wants a whole bunch of paper cluttering up their desk. It makes it difficult to file things. So over the years, we’ve favored towards e-delivery. I want things delivered to me via email. Well, again, the Secure 2.0 is under the theory of protection, providing protections and benefits and more opportunities for safety.
And one of the things that they want to do is if you are a new participant after 2025, so 2026 and beyond, your first statement must be a paper delivery statement, and that’s to make sure that that delivery has happened, that you’ve got that paper in front of you, you can see those benefits, know when you’re eligible to participate in the plan, what the company matches, and so on. After that first initial paper statement, you can convert over to electronic. And in fact, if you’re what we call wired at work, you primarily use email and technology as part of your job on a regular basis, you can opt out of that paper statement as well and go fully electronic, but the default going forward is at least one paper statement.
John Walker
Yeah, it’s interesting, right? We’ve certainly seen a shift throughout the entire industry and I guess globally in general, to more digital delivery of everything. I think this is a kind of a unique new wrinkle of this law, that old school paper delivery, unless a participant chooses to opt out of that. So if you are a new participant of a plan, right? If I understood you correctly, you must get your first statement by paper to begin to make sure that you’re aware of the plan that you’re participating in and exactly how it works. I guess as a plan sponsor, it’s important that you have the mechanisms in place to be able to deliver that. But I’d imagine most have migrated towards a more digital-based delivery service.
Jaron Carmichael
Yeah, that’s right. I mean, obviously you need to have their address of where to deliver that. It’s almost easier to track that they did get it through electronic delivery. You get that read receipt that they opened it and they saw it, so it’s mildly interesting. I think you’ll see a lot of people looking for how do I opt out of this and switch back over to the electronic statements going forward, so.
John Walker
If an employer is made aware of this by one of their employees here that’s listening or, you know, has, maybe they are on top of it and they realize that they’re gonna have to be able to be nimble here and maybe make some revisions. What do they need to know? Are there certain things that need to be done? Are there deadlines? Are there things that folks listening should be aware of?
Jaron Carmichael
I think, you know, if you’re not working with a record keeper platform to help you with this, this is one reason why you might want to consider doing so. If you’re a plan sponsor, you’re an employer, you have employees in your plan, having a record keeper can do a lot towards making sure that all the notices go out, that they’re being delivered the way that they should. Rather than trying to take this upon yourself and understand all the rules and the nuances, get some help, hire a service provider.
Mercer Advisors does not act as a record keeper or third-party administrator, but we can sit in between. We can help you to find that right service provider to hire, how you work with them, and make sure that all these boxes are getting checked. So I think the biggest thing, John, is just hire somebody else to take care of this for you instead of trying to understand all the different nuances, and delivery and how they need to take place.
John Walker
That’s really, really great advice there, Jaron. And Dennis, I’d imagine that, you know, if you are going this alone, there’s probably some deadlines and some compliance stuff you need to be aware of if you’re gonna be able to be up to date with the revisions required in the Secure 2.0 Act.
Dennis Jablonoski
Well, that’s absolutely true, and that’s why we find, John, that we work directly with these plan sponsors and business owners to assist them because, let’s face it, they’re laser focused on their bottom line and growing their revenues, and there are a lot of administrative things that need to be done regarding the 401(k) plan, you know, getting out notices, updating all the participants, making sure that they’re aware of the changes, getting the correspondence out about safe harbor contributions and a lot going on.
So that’s where we find that when we come in to work as the conduit between the business owner and that record keeper and that third party administrator, we’re the ones that are helping to partner with the company to be able to make sure that from a compliance and administrative standpoint that they are checking all their boxes and they’re all being done at the right times of the year and they’re fulfilling the obligations that they’ve made to their participants and their employees.
John Walker
Yeah, I think that’s really helpful. This is an ever-changing landscape in the retirement planning space. I know that we’ve had guests on previously and as obviously employees ourselves, you know, this is a huge benefit to employees of organizations that provide plans like this. It’s often a determining factor in where people choose to work or where they choose to remain working as a key benefit along with other medical, health, etc. benefits, having a really robust retirement plan with lots of options and with maybe a really nice employer match. These are things that, you know, as employers in a really competitive hiring landscape are trying to land the best candidates for their organization, having a good retirement plan and a plan sponsor to help them navigate it is kind of a key component.
Jaron Carmichael
One other provision that’s optional, not mandatory like the Roth catch-up contributions, but employers can choose to include this in their plan if they want to, and that is penalty-free distributions to pay for long-term care premiums. So I don’t think you’re going to run into this as widespread as the mandatory Roth option. But previous to this, if you want to take out a distribution, you have to wait until age 59.5.
If your plan offers in-service withdrawals, you have to be retired, disabled. Sometimes there were provisions for a hardship withdrawal. And so this is one more option where you can take out a distribution. And you will be taxed on it, but no 10% penalty if those distributions are used to pay long-term care premiums. I’m not going out recommending that all my plans adopt this provision. It does put some burden on the plan sponsor to approve the distributions to verify that they’re being used for long-term care, but that is another option that’s out there that’s new this year.
John Walker
And for folks that are plan sponsors that may have folks this would be beneficial to, you know, it’s something that they could at least consider as a benefit to their employees if it’s something they want to enhance their plan with. Jaron, what are some other things that folks might want to be considering here in 2026?
Jaron Carmichael
Some people are looking to do more Roth. They want to do backdoor Roth. And so the advantages of having Roth money in the plan is that when you’re later in retirement, you can control that tax bracket, pull from the Roth bucket instead of the pre-tax. I think also, you know, if this is a problem for your tax planning, you can get around it by, if you’re using both pre-tax and Roth in the regular contributions and taking away the option to do pre-tax catch-up is an issue for your tax planning, well then just do all of your regular contributions as pre-tax, and then you have room in that Roth and you might be able to just rebalance how you do those regular contributions and end up in the same place.
And then I think the other item to keep in mind is for those retirement plans who you already have participants who make over $150,000 that are doing pre-tax contributions, they don’t necessarily have to take action. There’s one of two things that can happen and it really depends on the service providers that you have in place, but those pre-tax catch-up contributions may automatically be deemed to be Roth, and so that’s just taken care of for you. Your payroll provider, your record keeper, will just convert those to Roth for you. The other thing that might happen is you’re just cut off of that $24,500 and you need to proactively go into the recordkeeping system and elect to make those catch-up contributions knowing that they’re Roth.
John Walker
The real critical takeaways, folks, are, if you’re over the age of 50 and you have an earned income of more than $150,000 last year, how you’re able to do catch-up contributions is going to change in 2026, and you need to be aware of that. You need to make sure that your plan allows for the types of catch-up contributions that are required now, meaning they need to be able to offer a Roth account as a part of your retirement plan. You’re gonna really want to revisit your tax strategy with your advisor because you’re no longer able to make those as pre-tax contributions, and that might alter your approach to tax planning for the year, or it might even adjust your savings strategy for the year, depending how you approach those catch-up contributions.
It’s really, really important that you understand that. And for our plan sponsors out here, there’s gonna be certainly need to be aware that if you’re going to want your employees to be able to benefit from catch-up contributions, you might need to amend your plan and you’re certainly gonna need to make sure that you have the operational capacity and the things set up in place to make sure that you have paper statements and other amendments and compliance deadlines are met as a result of the new implementation of Secure 2.0. Jaron Carmichael and Dennis Jablonoski from our retirement plan group, thank you so much for joining us to share this really, really important update.
Jaron Carmichael
Thank you for having us.
Dennis Jablonoski
Thanks, John.
John Walker
So if you’re a participant in an employee plan or if you’re a plan sponsor and what we shared with you has you wondering how this applies in 2026 and what changes you might need to make, we’re always here to help. Give us a call anytime at 215-558-3500. That’s 215-558-3500. Or you can email me at jwalker@merceradvisors.com. That’s jwalker@merceradvisors.com. I’m John Walker, Regional Vice President at Mercer Advisors. Thanks so much for listening to the Your Life Your Wealth podcast. Talk to you next time.
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