A retirement plan offers several benefits to you and your staff. As the IRS says, “Retirement plans allow you to invest now for financial security when you and your employees retire. As a bonus, you and your employees get significant tax advantages and other incentives.” Whether you already have a qualified retirement plan for your business or are planning to start one for 2026, there are a lot of new things to keep in mind. There are new dollar limits on contributions, new rules for catch-up contributions by highly compensated employees, and more.
New rules and dollar limits to know
Higher contribution limits
Due to cost-of-living adjustments, many but not all of the limits for qualified retirement plans are higher in 2026 than in 2025. Here are some of these limits:
- 401(k) plan elective deferrals: $24,500, plus $8,000 for those who are age 50 and older by December 31, 2026 (the limits were $23,500 and $7,500 respectively in 2025). A higher catch-up limit for certain participants is explained below.
- Savings incentive match plan for employees (SIMPLE) elective deferrals: $16,500, plus $3,500 for those who are age 50 and older by December 31, 2024 (the limits were $16,500 and $3,500 respectively in 2025). For employers with 25 or fewer employees, the contribution limit is $18,100 (up from $17,600 in 2025). Employers with up to 100 employees must either make a flat nonelective contribution of 2% of employee pay or match employee contributions dollar-for-dollar up to 3%, but if those with 26 to 100 employees chooses either a 3% nonelective contribution or a 4% match, employees can contribute up to the same limits as a company with 25 or fewer employees (i.e., $18,100 in 2026). Higher catch-up contribution limits are explained below.
- Defined contribution plans (profit-sharing plans and simplified employee pension plans [SEPs]): the limit is $72,000 (up from $70,000 in 2025).
- Defined benefit (pension) plans: the limit is $290,000 (up from $280,000 in 2025).
- Starter 401(k)s: The elective deferral limit remains at $6,000, with a permissible catch-up amount of $1,100 for those 50 and older by the end of 2026. The basic elective deferral amount is unchanged from 2025, but the catch-up amount is $100 more.
- Compensation taken into account in figuring contributions and benefits: the limit is $360,000 (up from $350,000 in 2025).
Special rules for certain catch-up contributions for highly compensated employees
Those age 50 and older can add an extra amount. It’s called a catch-up contribution, but it’s made without regard to whether they did or didn’t make the maximum contributions allowed in earlier years.
Added catch-up contribution for 401(k)s. Those who are ages 60, 61, 62, or 63 in 2026 can make a catch-up contribution of $11,250 (unchanged from 2025).
Added catch-up contribution for SIMPLE-IRAs. Those who are ages 60, 61, 62, or 63 in 2026 can make a catch-up contribution of $5,250 (unchanged from 2025). For companies with 25 or fewer employees, the catch-up contribution for those other than participants age 60-63 is $3,850 (unchanged from 2025).
Highly compensated employees. SECURE Act 2.0 said that highly compensated employees age 50 and older had to make any of their catch-up contributions in a 401(k) plan to a Roth account (i.e., after tax) beginning in 2024. The IRS created a transition period, which postponed the effective date of this rule until 2026. Final regulations issued earlier this year clarify some of the details for this rule.
- Who is highly compensated? The threshold for is $150,000 and is based on W-2 wages for the prior year. So, if the amount in box 3 Social Security wages is more than $150,000, the employee is highly compensated. This dollar amount may be adjusted for inflation after 2026.
- What if the plan does not have a designated Roth option? In this situation, highly compensated employees cannot make catch-up contributions. This rule does not impact the ability of non-highly compensated employees to make catch-up contributions.
- What must employees do to make catch-up contributions? There must be an affirmative election—separate from the basic salary deferral election—for catch-up contributions. Employees who are not highly compensated need to specify whether their catch-up contributions are pre-tax or after-tax (to a designated Roth account).
Choosing a retirement plan for 2026
According to a recent survey, generational divides dictate interest by small business owners in having a retirement plan. More than three-quarters (77%) of millennials (median age 37) think offering a retirement plan is “essential” to their business, but only 67% of Gen Zs (median age 21) agree. Despite being closer to retirement age, only about half (57%) of Gen X small business owners (median age 53) believe in the importance of having a retirement plan for their business.
If your business has employees and has not yet set up a qualified retirement plan for 2026, there’s plenty of time to do so. The deadline is the extended due date of the tax return for 2026. But the earlier you commence the plan, the more flexibility you have in your choice due to notice requirements to participants. And it’s not too late to set up a plan for 2025 if you’re so inclined.
There are many factors that go into a decision on which plan to use. IRS Publication 3998 contrasts plan options for small businesses.
Tax credit. Small businesses can qualify for a federal tax credit for starting a retirement if they haven’t had one in the past 3 years. And there’s an additional credit if the plan has automatic enrollment for employees.
Final thought
As part of your year-end tax planning, review your retirement plan options with your CPA or other tax adviser now. This will enable you to adjust your budget for 2026 and help employees build meaningful retirement savings.
Find other blogs about choosing a retirement plan in this list here.
