Insight 2026 Plan Cost of Living Adjustments Issued by IRS
The IRS just released the eagerly awaited annual cost of living adjustments affecting retirement plans for 2026 following the end of the federal government shutdown. Some of the more notable adjustments relative to common plan types/designs are as follows (rules and application may vary by plan type and design):
New Catch-Up as Roth – $145,000 to $150,000. This new provision takes effect for the first time January 1, 2026. It provides that employees earning a specified amount of FICA wages in 2025 must make 2026 catch-up contributions in the form of Roth. The initial threshold figure was $145,000. It is now $150,000, which will decrease the population to which this unpopular new rule will apply. Despite the higher limit, it is important that employer plan sponsors accommodate this new law by January 1. Interaction with advisors and service providers should be far along in the process at this point, as should communications to potentially affected participants.
Annual Deferral Contribution Limit – $23,500 to $24,500.
Catch-Up Contribution Limits – $7,500 to $8,000. The set of laws referred to as “SECURE 2.0” allows plans to provide that this limit for participants ages 60-63 may be $11,250. This “super” catch-up figure remains unchanged.
Annual Total Contribution Limit (defined contribution plans) – $70,000 to $72,000.
Highly Compensated Employee Threshold – Remains at $160,000.
Key Employee Compensation Threshold (to determine a plan’s “top heavy” status) – $230,000 to $235,000.
Annual “401(a)(17)” Compensation Limit – $350,000 to $360,000.
Domestic Abuse Distribution Limit – $10,000 to $10,500.
These limits have a variety of applications and will influence plan operations in terms of permissible employee deferrals, employer contributions, nondiscrimination testing, required participant disclosure content, and more. Please don’t hesitate to reach out for assistance in determining potential effects on your plan(s), and in particular in ensuring compliance with the new mandatory catch-up as Roth rule applicable to some participants.
This blog is provided by Hawley Troxell Ennis & Hawley LLP for educational and information purposes only. It is intended to notify our clients and friends of certain events or issues. It is not intended to be, nor should it be, used as a substitute for legal advice regarding specific factual circumstances. © Hawley Troxell Ennis & Hawley LLP all rights reserved.