What a catch-up contribution is
A catch-up contribution is an extra salary deferral to a 401(k), on top of the ordinary limit of $24,500 for 2026, allowed from the year you turn 50. SECURE 2.0 added a larger catch-up for people who turn 60, 61, 62 or 63 during the year.
| Age | Ordinary deferral | Catch-up | Total you can defer |
|---|---|---|---|
| Under 50 | $24,500 | None | $24,500 |
| 50 to 59 | $24,500 | $8,000 | $32,500 |
| 60 to 63 | $24,500 | $11,250 | $35,750 |
| 64 and over | $24,500 | $8,000 | $32,500 |
Catch-up contributions do not count toward the $72,000 overall limit on what goes into a 401(k) in a year, so they sit on top of everything else.
A cash balance plan has no catch-up of its own. Its limit already rises with age. The catch-up belongs to the 401(k) many owners run alongside it; see using a cash balance plan with a Solo 401(k).
The Roth rule
SECURE 2.0 section 603 added IRC 414(v)(7). If a participant's wages from the employer sponsoring the plan were more than a threshold in the previous calendar year, any catch-up contribution they make must be a designated Roth contribution. For catch-ups made in 2026, the threshold is $150,000 of 2025 wages.
A Roth contribution is made from income that has already been taxed. It gives no deduction in the year it goes in; in return, qualified withdrawals later, generally after age 59½ and five years, are free of federal income tax.
- Wages means Social Security wages: box 3 of your Form W-2 from that employer.
- Only the sponsoring employer counts. Wages from an unrelated job elsewhere do not push you over.
- It is last year's wages that decide this year. Salary you are paid in 2026 decides your catch-up for 2027.
- Each person is tested on their own wages. A spouse on the payroll is tested separately.
The rule applies to taxable years after 2023, but the IRS gave an administrative transition period through 2025. The final regulations apply from 2027, and for 2026 plans follow a reasonable, good-faith reading of the statute. In practice, 2026 is the first year the rule bites.
Why the self-employed are not caught
The test uses wages as defined for Social Security and Medicare tax on employees. A sole proprietor or partner has no wages from their own business. Their pay is self-employment earnings, which are taxed through self-employment tax instead.
So a sole proprietor or partner has zero wages for this test, whatever they earn, and can make pre-tax catch-up contributions at any income. The final regulations refer to highly paid people with self-employment earnings as not subject to the Roth requirement.
| Owner | Catch-up treatment in 2026 |
|---|---|
| Sole proprietor, single-member LLC or partner | Pre-tax allowed at any income |
| S or C corporation owner, 2025 W-2 wages from the company of $150,000 or less | Pre-tax allowed |
| S or C corporation owner, 2025 W-2 wages from the company over $150,000 | Must be Roth |
What it means for S corporation owners
For an S corporation owner who is 50 or older and paid more than $150,000 in 2025, the change is modest in dollars: the $8,000 catch-up ($11,250 from 60 to 63) is still allowed, but it comes out of taxed income. The ordinary $24,500 deferral, the company's profit-sharing contribution and the cash balance contribution are all unaffected and remain deductible.
It is tempting to hold salary at $150,000 to keep the catch-up pre-tax. For an owner with a cash balance plan, that is rarely the deciding factor. Salary is what the plan counts as your pay, and it sets how large the plan account can eventually grow. A lower salary to save the deduction on a few thousand dollars can cost far more in plan room. The trade-off is set out in S corporation owners.
Because the test looks back a year, an S corporation formed in 2026, which paid no 2025 wages, does not trigger it for 2026 on the rule's terms. The first year it can apply is 2027, based on 2026 wages.
The Roth catch-up is also not a bad outcome for everyone. Owners who expect a high tax rate in retirement, or who want some tax-free money alongside a large pre-tax pension, may prefer Roth anyway. That is a question for your tax adviser.
How the calculator handles it
The cash balance plan calculator treats a corporate owner's catch-up as Roth when the salary entered is above $150,000, assuming last year's salary was the same, and leaves it out of the tax savings. For sole proprietors and partners the catch-up is counted as pre-tax. The deferral limits at every age are on the 2026 limits page.