Key Takeaways
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Retirement contribution limits are increasing across 401(k), IRA, and other plans beginning in 2026.
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Higher caps offer business owners more room for tax-advantaged savings and stronger retention tools for top employees.
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New rules require certain high-income employees to make catch-up contributions as Roth (after-tax) contributions.
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Reviewing plan design and contribution strategy before year-end is essential to take full advantage of the changes.
If you own a business or help manage one, 2026 is shaping up to bring important changes in retirement-plan contribution limits that could impact your tax and compensation strategy. The Internal Revenue Service has announced cost-of-living adjustments for 2026 that raise contribution limits for 401(k), 403(b), IRA, and other retirement plans. For firm owners, partners, and key executives, this means new opportunities and new planning responsibilities.
What’s Changing
Here are some key 2026 changes you’ll want to be aware of:
- The elective deferral limit for 401(k), 403(b), and most 457(b) plans will rise to $24,500, up from $23,500.
- For those aged 50+ making catch-up contributions, the limit increases to $8,000 for most plans.
- The IRA annual contribution limit will increase to $7,500, while the catch-up for 50+ jumps to $1,100.
- For business owners, the total combined employer + employee contribution cap in defined-contribution plans climbs from about $70,000 to roughly $72,000.
- Starting in 2026, higher-income employees (prior-year wages over $145,000) making catch-up contributions must direct those into Roth (after-tax) accounts, if the plan allows.
These adjustments are part of the regular inflation indexing formula required by tax law.
Why It Matters for Business Owners
As a business owner or practice leader, you wear many hats: investor, employer, and retirement-saver. These limit increases open up new planning levers:
- Tax savings potential: Higher contribution caps allow you and your key employees to shelter more income from tax (or shift some income to tax-free in the case of Roth).
- Competitive compensation tool: For firms with senior executives or important team members, these additional contribution opportunities can become a benefit enhancement, especially in tight talent markets.
- Plan design implications: For owners who also sponsor plans for employees, these changes may trigger design reviews. For example, do you need to amend your plan for Roth catch-up compliance?
- Year-end urgency: Because these limits apply to 2026, you’ll want to evaluate your contribution strategy before year-end, especially if you have compensation plans, bonus accruals, or capital transactions projected for late in the year.
Example Scenarios
Scenario 1 – Owner/Operator Saving Big
Sarah runs a mid-sized consulting business. She’s 51 and typically maxes out her 401(k). With the 2026 limit at $24,500 plus $8,000 catch-up, she now has $32,500 of elective deferral capacity, compared to $31,000 in 2025. That extra $1,500 can reduce taxable income and boost retirement assets further.
Scenario 2 – Key Employee Retention Advantage
Tom is a senior operations manager in a manufacturing firm. The employer offers a defined-contribution plan with matching. With the 2026 total contribution cap increasing, the firm can make larger profit-sharing allocations, helping retain Tom, and provide a compelling recruiting selling point without necessarily increasing base salary.
What Business Owners Should Do Now
- Review plan design and administrative readiness
Ensure your retirement plan allows Roth contributions, especially if you have higher-income employees impacted by the new catch-up Roth requirement. Check plan amendments and communications. - Forecast contributions and tax impact
Estimate how much you and key employees can contribute under the new limits and assess how this affects your taxable income and retirement savings projections. - Align compensation and bonus structures
If you intend to increase your retirement deferrals next year, consider how bonus accruals, year-end compensation decisions, or capital event timing affect availability to contribute and deduct. - Communicate with your team
Educate key employees about the increased limits and what it means for them. Use it as a retention benefit and planning tool. - Update your planning calendar
Because changes take effect for the 2026 plan year, build a year-end checklist: plan amendment timing, contribution election changes, and communication deadlines.
Make the Most of It
The 2026 retirement-account limit increases represent a meaningful opportunity for business owners and their senior teams. But like all tax-planning tools, the benefits won’t fully materialize without proactive design and early action. Waiting until January may mean missing an opportunity. If you register your plan amendments late or fail to communicate changes to key employees, you risk under-utilizing the new limits or creating misalignment in compensation strategy.
At Bailey Scarano, we assist business owners and executive teams in aligning retirement-plan design with tax strategy and compensation planning. If you haven’t yet reviewed your 2026 contribution strategy or designed a retention plan around enhanced savings limits, now is the time to act. Reach out to our team to model scenarios, update plan documents, and integrate these changes into your broader business goals.