Hey everyone, it’sDave Dennistonhere withCenturion Financial Strategies.
I want to take a few minutes to walk you through an important change coming in 2026 under the SECURE 2.0 Act — specifically aroundcatch-up contributionsto retirement plans like 401(k)s.
This one’s easy to misunderstand — even a lot of advisors got tripped up early on — so I want to break it down clearly and tell you who it actually affects, and who it doesn’t.
Starting in 2026, if you’re age 50 or older and you make catch-up contributions to your 401(k), 403(b), or 457(b), there’s a new rule:
If your W-2 wages from your employer were more than $145,000 in the prior year, your catch-up contributions must be made on a Roth, or after-tax, basis.
You’ll still get the benefit of tax-free growth, but you won’t get the upfront tax deduction on those catch-up dollars.
And here’s the key point that creates confusion:
This rule applies only to W-2 FICA wages — the amount reported in Box 3 of your W-2 — not your total income.
If you’re self-employed — meaning a sole proprietor or a partner reporting earnings through a K-1 — this rule does not apply to you.
And if you own an S-corporation, the only thing that matters is your W-2 wages from that S-corp. Your business profits, distributions, and pass-through income do not count toward the $145,000 threshold.
So, if your W-2 salary is below $145,000, you can still choose between traditional pre-tax and Roth catch-up contributions.
If your W-2 salary is above $145,000, your catch-up contributions in 2026 and beyond will need to be Roth.
Let me give you a couple of quick examples.
Example one:
Sarah owns an S-corp and pays herself a W-2 salary of $120,000, plus she takes $200,000 in distributions. Even though her total income is over $300,000, herW-2 wagesare below the $145,000 threshold — so she isnotrequired to make Roth catch-up contributions.
Example two:
Mike owns an S-corp and pays himself a W-2 salary of $160,000. Even if he doesn’t take large distributions, he’s over the $145,000 mark — so his catch-up contributions must be Roth starting in 2026.
If you’re 50 or older and make catch-up contributions, here are a few steps to think through:
Review your W-2 wages for 2025.
That number determines whether you’re subject to the rule in 2026.Confirm your business structure.
Are you an S-corp owner, sole proprietor, or partner? This matters for how the rule applies.Consider your 2025–2026 payroll strategy.
If you want to keep pre-tax catch-up flexibility, you may decide to set W-2 wages below $145,000.Coordinate with your payroll provider and plan administrator.
Plans must allow Roth contributions for anyone who exceeds the threshold.To sum it up:
This rule doesn’t affect everyone — just people age 50 or older who have more than $145,000 in W-2 wages from the employer sponsoring the plan.If you’re self-employed or take most of your income as distributions, you might not be affected at all.
If you’re unsure where you fall — or want to make a plan around your W-2 wages for 2026 — let’s talk. I’m here to help make sure you’re positioned well as these changes take effect.
Thanks for watching, and here’s to your financial freedom.