Retirement plans have always been one of the cleanest ways for business owners to reduce taxes and build long-term wealth. What’s different about 2026 is the scale of the opportunity. Higher limits, new Roth rules, and a stable tax environment give employers more room to shape a plan that truly works for them and their teams. This article continues our 2026 Retirement Planning Series, turning the spotlight to 401(k)s, the workhorse of employer-sponsored retirement planning, with a short look at how these rules apply to the Solo 401(k) as well.
Higher 401(k) Contribution Limits in 2026
Bigger salary deferrals
In 2026, employees can contribute up to $24,500 from their pay into a 401(k). This is a modest increase from the $23,500 limit in 2025. If you’re under age 50, $24,500 is your personal max deferral for the year (whether pre-tax traditional, Roth, or a mix). These higher limits are indexed to inflation, which is why they bumped up again for 2026.
Catch-up contributions (50+)
If you’re 50 or older, you can set aside even more. The standard catch-up contribution limit rose to $8,000 (up from $7,500) for 2026. That means folks 50+ can contribute a total of $32,500 from salary ($24,500 regular + $8,000 catch-up). Catch-up contributions continue to be an excellent way to accelerate savings as retirement nears.
“Super” catch-up for ages 60–63
A special new rule from SECURE 2.0 targets those about to retire. If you’ll be 60, 61, 62, or 63 in 2026, you can contribute extra, up to $11,250 in catch-up contributions instead of the usual $8,000. This so-called “super catch-up” is designed to let late-career individuals turbocharge their 401(k) balances. Importantly, this higher catch-up limit is optional for plans (your plan has to allow it) and only applies in the years you are age 60–63. Essentially, if you’re in that age window, you could defer $35,750 of your salary into your 401(k) for 2026 ($24,500 + $11,250).
Total contribution limits
Remember that in addition to what you put in, there are limits on the combined amount that can go into your 401(k) each year, including employer contributions. For 2026, the total cap (employee + employer) is $72,000 (up from $70,000 in 2025).
Importantly, this does not include catch-up contributions.
Therefore, if you’re over 50, the $8,000 catch-up can bring your total to $80,000, and those 60–63 could go as high as $83,250 including the special catch-up. These are significant limits – and if you have the profits and cash flow, you’ll want to design your plan to take full advantage.
| 2025 | 2026 | |
|---|---|---|
| Employee Deferral | $23,500 | $24,500 |
| Catch-Up Ages 50+ | $7,500 | $8,000 |
| Higher Catch-Up Ages 60–63 | $11,250 | $11,250 |
| Total Cap Employee + Employer | $70,000 | $72,000 |
| Max w/ Catch-Up Ages 60–63 | $81,250 | $83,250 |
New Roth Rules for High Earners’ Catch-Up Contributions
One of the most talked-about SECURE 2.0 changes kicks in now in 2026: if you’re a high earner, any catch-up contributions you make must be Roth. Here’s the rundown:
Mandatory Roth catch-ups
Starting this year, anyone age 50+ who earned more than $150,000 in wages at their company last year can only make catch-up contributions on an after-tax Roth basis. In other words, if your 2025 wages with your employer exceeded $150k, your $8,000 (or $11,250) catch-up in 2026 cannot be tax-deferred, as it needs to go into the Roth side of the 401(k). This rule was included in SECURE 2.0 to boost tax revenue upfront, and after a two-year implementation delay, it’s now effective.
Impact on employees and plans
For high-earning business owners and executives, this means a bit less tax break in the current year – you’ll pay taxes on those catch-up dollars now, then enjoy tax-free growth and withdrawals later. If your 401(k) plan doesn’t offer a Roth option yet, it’s time to amend it. (Plans that had no Roth feature would have forced those high earners to lose catch-up privileges altogether, which is why the IRS gave everyone extra time to add Roth provisions.) Practically speaking, most modern 401(k) plans do have a Roth component, but double-check yours. As the employer, you want to ensure your plan stays attractive and compliant for your high earners (including yourself).
Roth vs. traditional contributions
Aside from catch-ups, you and your employees can generally choose either pre-tax (traditional) or Roth for your regular 401(k) deferrals. Roth contributions don’t reduce your taxable income today (you pay taxes now), but withdrawals in retirement are tax-free. Traditional contributions give you an upfront tax deduction, but withdrawals in retirement are taxed as income. Which is better? It depends on your situation. Conventional wisdom says that if you expect to be in a lower tax bracket in retirement (or you really need the tax break now), traditional 401(k) contributions may make sense; higher earners who expect to face higher taxes later (or who value tax-free income in retirement) might lean toward Roth. With the new catch-up rule, Congress has nudged more high earners toward Roth, at least for that extra $8k–$11k portion of savings.
Planning around the new rule
If you’re a business owner in your 50s or 60s with a high income, be prepared for the Roth catch-up requirement. This could be a great time to revisit your tax strategy. Some owners may decide to increase their normal 401(k) deferrals on a pre-tax basis (to maximize deductions), while using the Roth catch-up for tax diversification.
Others might go all-Roth for contributions if they anticipate higher tax rates down the road. The key is to weigh the benefit of today’s tax deduction versus tomorrow’s tax-free withdrawals. We now have both options inside the 401(k), which is powerful.
Just keep in mind, though, that Roth 401(k) contributions are subject to the same $24,500 limit as traditional; you can split between Roth and pre-tax, but the total can’t exceed the annual limit.
Optimizing Employer Contributions as a Business Owner
One advantage of being both an employer and a plan participant is that you control the purse strings on employer contributions. In 2026, the rules allow you to be quite generous to yourself (and hopefully your employees as well):
Understanding the employer contribution
Employer contributions can take the form of a matching contribution (e.g. you match a percentage of employee deferrals) or a profit-sharing contribution (a discretionary amount the company contributes, allocated among participants). These employer contributions are usually tax-deductible to the business. For owner-employees, this is essentially shifting money from your business profits into your 401(k), where it grows tax-deferred (or tax-free, if contributed to a Roth 401(k) via an in-plan Roth option).
The 25% rule
In a profit-sharing setup, the maximum employer contribution is typically 25% of an employee’s eligible compensation. For example, if you pay yourself $300,000 in W-2 salary, the company could potentially contribute $75,000 as a profit-sharing employer contribution for you (25% of $300k). However, remember the overall cap – you can’t exceed the $72,000 total limit for 2026 in combined contributions (plus catch-ups).
So in practice, with a $300k salary you could do $24,500 as your own deferral, and have the company contribute up to $47,500 to reach the $72k total. If you’re over 50, you’d then add your $8k catch-up on top. The higher your salary (up to the IRS compensation limit of $360,000 in 2026), the easier it is to hit the maximum contribution.
Plan design for HCEs
Business owners and other highly compensated employees (HCEs) are subject to nondiscrimination tests in standard 401(k) plans – meaning you can’t max out your contributions if your rank-and-file employees aren’t participating sufficiently. This is where plan design is crucial. Many companies implement a safe harbor 401(k), which bypasses most testing by committing to a set employer contribution for employees (like a 3% fixed contribution or a 4% match).
A safe harbor plan “automatically meets testing requirements” and thus allows high earners to contribute up to the full 401(k) limit without worry. In Florida, a lot of the business owners I work with choose safe harbor plans – it’s a straightforward way to ensure you (and your key team members) can max the $24,500 deferral every year, while also rewarding employees with a guaranteed contribution.
Profit-sharing and owner benefits
Beyond safe harbor, profit-sharing allocations can be tilted (within legal limits) to favor owners or older employees through “new comparability” or age-weighted formulas. For instance, you might give yourself and other partners a higher percentage of pay than you give younger staff, as long as the plan passes a special nondiscrimination test. If your goal is to contribute and deduct the full $72,000 for yourself, these plan designs can help you get there in a cost-efficient way. It’s wise to consult with a retirement plan advisor or third-party administrator on designing a allocation formula that suits your goals. Bottom line: as a business owner, you have flexibility to maximize your own 401(k) contributions – just be prepared to extend some generosity to your employees, or use plan features that keep your plan fair and compliant.
Solo 401(k)s for the One-Person Business
What if you are the business? For entrepreneurs with no full-time staff (or just a spouse), a solo 401(k) is often the retirement plan of choice. Here’s a quick rundown:
Solo 401(k) basics
Also called an individual 401(k) or one-participant 401(k), this plan is just a regular 401(k) covering a business owner with no employees (apart from a spouse). You get the same contribution limits as any 401(k). The only difference is, in a solo 401(k) you wear two hats – employee and employer – and you can contribute in both roles. As the employee, you can defer up to $24,500 of your earnings in 2026 (plus catch-up if age 50+). As the employer, you can contribute up to 25% of your net self-employment income or W-2 wages. The sum of both cannot exceed the annual total limit ($72,000 plus catch-ups) or 100% of your income, whichever is less.
Who benefits most
Solo 401(k)s are ideal for self-employed professionals, freelancers, and owner-only businesses because they allow much higher contributions than, say, an IRA or even a SEP IRA in many cases. For example, a sole proprietor earning $100,000 could potentially contribute around $42,000 into a solo 401(k) (nearly 42% of their income) by using the employee deferral and employer profit-share. That far exceeds what the same person could put in an IRA ($7,500) or even a SEP IRA (about $20,000 at 20% of net profit). Moreover, solo 401(k)s permit Roth contributions and catch-ups, which SEP IRAs do not. If you have irregular income, the ability to make a large employer contribution in a good year is a big plus.
Low admin burden
Setting up a solo 401(k) is straightforward with most brokers or financial institutions. There’s little paperwork until the assets exceed $250,000 (at which point the IRS asks for an annual Form 5500-EZ filing, which is still quite simple). There are no complex testing requirements because you have no employees to compare against. In essence, you get full control and flexibility to maximize your retirement savings. Just keep in mind that if your business grows and you hire full-time staff, your solo 401(k) will have to convert to a standard 401(k) plan covering those employees and you can’t exclude them. But if you think you’ll remain a one-person operation (or you and your spouse), the solo 401(k) is a powerful vehicle.
In Conclusion
Taken together, the 2026 rules turn the 401(k) into an even more effective planning engine. The higher ceilings, enhanced catch-ups, and Roth requirements give employers real room to shape outcomes, not just react to them. If your business is having a strong year, this is a chance to capture meaningful tax advantages. If you’re over 50, the catch-up provisions alone can shift the trajectory of your retirement balance. And if your plan hasn’t been reviewed in a while, an update this year could put you in a far stronger position going forward.
Our work at WealthGen is to help business owners bring clarity to these decisions. If you’d like a strategy session focused on your 401(k), stock options, and longer-term planning, we’re here to help you make sure every part of your financial picture is pulling in the same direction.
Sources:
- Investopedia – 401(k) Contribution Limits for 2025 vs. 2026
- Investopedia – Should I Choose a Traditional or Roth Retirement Account?
- ADP – 2026 401(k) Contribution Limits and Rules
- Fidelity – Solo 401(k) Contribution Limits for 2025 and 2026
- AARP – New $6,000 “Senior Bonus” Tax Deduction (2025–2028)
- Storen Financial – Key Aspects of the One Big Beautiful Bill Act (2025)
- IRS News Release – 401(k) and Catch-Up Limit Increases for 2026
- Investopedia – New Roth Catch-Up Requirement for High Earners
