IRS announced higher contribution limits for retirement accounts in 2026, giving employees more room to save pre-tax income.
Starting January 1, workers enrolled in 401(k) plans can contribute up to $24,500 annually, a $1,000 increase from 2025’s $23,500 cap. The same limit applies to 403(b) plans, governmental 457 plans, and the federal Thrift Savings Plan.
The agency also increased IRA contribution limits to $7,500, up from $7,000 in 2025.
Here’s what contractors need to know about the changes:
Catch-up contributions increase
Workers aged 50 and older can make additional catch-up contributions beyond the standard limit:
- Ages 50-59: The catch-up limit rises to $8,000 in 2026, up from $7,500. Employees in this age range can contribute up to $32,500 total.
- Ages 60-63: A higher catch-up limit of $11,250 applies, allowing total contributions of up to $35,750.
- IRA catch-up: The catch-up contribution for those 50 and over increases to $1,100, up from $1,000.
New Roth requirement for high earners
Starting in 2026, employees who earned more than $150,000 in Social Security wages (Box 3 on the W-2) from that employer in 2025 must make all catch-up contributions as Roth (after-tax) contributions — but only if their employer’s plan permits Roth contributions.
This threshold is based on SECURE 2.0’s statutory $145,000 amount but is indexed annually for inflation, which brings it to approximately $150,000 for the 2026 plan year.
If your plan does not currently allow Roth contributions, high earners cannot make any catch-up contributions at all unless the plan is amended to add a Roth option.
Only catch-up contributions are affected. Regular contributions up to the $24,500 limit can still be made pre-tax.
This rule applies only to employees, not partners or self-employed individuals.
Employer contributions to children’s IRAs
IRS also issued guidance on “Trump Accounts,” a type of IRA for eligible children. Employers can contribute up to $2,500 per year to an employee’s or their dependent’s Trump Account through an employer contribution program. These contributions don’t count as taxable income to the employee and count toward the child’s $5,000 annual Trump Account limit. The contribution limits will be indexed for inflation starting after 2027.
Action items for plan sponsors
If you sponsor a 401(k) plan for your company, here’s what you need to know:
Plan design
Plans that don’t currently offer Roth contributions must be amended by the end of the 2026 plan year if you want to continue allowing catch-up contributions for high earners. You should decide whether to add the Roth feature and notify your plan recordkeeper before January 1, 2026.
Payroll coordination
Your payroll system needs to identify employees whose prior-year wages exceeded $150,000 and process their catch-up contributions as after-tax Roth contributions. This should be set up by December 31, 2025.
Employee communication
Affected employees need to understand what’s changing, when it takes effect, and how it impacts their take-home pay and tax treatment.
Plan amendments
SECURE 2.0 amendments are generally due by December 31, 2026, with extensions available for collectively bargained plans and governmental plans.
Income limits for IRA deductions and Roth contributions
IRS also adjusted income phase-out ranges that determine eligibility for IRA deductions and Roth IRA contributions:
- For single taxpayers covered by a workplace retirement plan, the phase-out range for deducting traditional IRA contributions increased to $81,000–$91,000, up from $79,000–$89,000 in 2025.
- For married couples filing jointly where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range increased to $129,000–$149,000, up from $126,000–$146,000.
- For Roth IRA contributions, the income phase-out range increased to $153,000–$168,000 for singles and heads of household, up from $150,000–$165,000. For married couples filing jointly, it increased to $242,000–$252,000, up from $236,000–$246,000.
Why it matters for HVACR contractors
The $1,000 increase in the standard contribution limit is the largest year-over-year adjustment since 2023. For employees trying to build retirement savings, the higher limits provide more tax-advantaged space to set money aside. For business owners, competitive retirement benefits remain one of the most effective tools for attracting and retaining skilled technicians and office staff.
IRS published full details in Notice 2025-67, available at IRS.gov.
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