What happened?

As a reminder, the Internal Revenue Service (IRS) released the 2026 cost-of-living adjustments (COLA) for retirement plan limits in Notice 2025-67. These changes impact 401(k), 403(b), governmental 457(b) plans and the Thrift Savings Plan.

• Employee elective deferral limit: $24,500 for 401(k), 403(b), governmental 457(b) plans, and the Thrift Savings Plan for federal employees.

• Age 50+ catch-up contribution: $8,000(maximum combined deferral $32,500).

• Special catch‑up (ages 60 to 63 under SECURE 2.0): $11,250 (maximum combined deferral $35,750).

• Annual additions (total employer plus employee contributions to defined contribution plans): $72,000.

• Defined benefit plan maximum annual benefit: $290,000 (effective January 1, 2026).

• Roth catch‑up wage threshold: $150,000 based on 2025 FICA wages; catchups must be Roth if wages are above this threshold.

• Other related retirement items:
  • Compensation cap $360,000
  • Highly compensated employee threshold $160,000 (unchanged)
  • Key employee threshold $235,000.

Overview

Why this matters: These higher IRS limits allow employees to contribute more towards retirement, but they also require employers and payroll providers to update systems to prevent over-or under-withholding. Employers must also apply the mandatory Roth-only catch‑up rule for employees with 2025 FICA wages above $150,000.

Action Steps for Compliance

• Update payroll and recordkeeping systems by January 1, 2026: Load the limits of $24,500, $8,000, $11,250, $72,000, and $290,000.

• Implement Roth catch‑up logic: Identify employees whose 2025 FICA wages are greater than $150,000 and enforce Roth‑only catch‑ups in 2026.

• Communicate to employees: Share the new limits and explain how to adjust contribution rates year‑round (subject to plan rules).

• Review plan documents and SPDs: Confirm that operational practices match plan provisions, including:
  • standard catchups,
  • special catchups for ages 60-63, and
  • annual additions handling.

Key Risks for Employers

• Incorrect withholding if payroll limits are not updated (can trigger plan qualification failures and require correction).

• Improper catch-up treatment, such as allowing pretax catchups for high-wage earners who must use Roth catch-up.

• Missed special catch-up eligibility for employees ages 60-63, which could result in participant complaints and corrective actions.

Additional Information

Catch‑up contributions (§414(v)): These allow participants age 50+ to contribute more than the standard deferral limit.

In 2026:

• Standard catch-up: $8,000
• Special catch-up (ages 60-63 under SECURE 2.0): $11,250

Elective deferral limit (§402(g)): This is the maximum pretax or Roth amount a participant may defer to 401(k), 403(b), 457(b), and TSP plans: $24,500 for 2026.

Annual additions limit (IRS total contributions cap, §415(c)) The annual additions limit – combined employer + employee contributions to a defined contribution plan ($72,000 in 2026).

For additional details:

• IRS 401(k) – Press Release IR-2025-111 (November 11, 2025)
• IRS – Notice 2025-67 

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