By 2026, the retirement aspect of top-earning employees and business owners will be at an essential compliance crossroad. With a permanent One Big Beautiful Bill Act (OBBBA), a new requirement has been implemented, which literally alters the identity of the processing of the so-called catch-up contributions.
Any employee whose previous year’s earnings were more than 155,000 pre-tax is out of the conventional deduction of the same before tax. This is not merely the change of personal tax strategy but rather a structural need that must be acted upon at the plan level as it happens.
Why is the $155,000 threshold a “trigger” for 401(k) plans?
The OBBBA also introduced a new compliance floor that was to be based on the section 3121(a) salaries. In case the W-2 income of the employee in the previous calendar year exceeded $155,000 (adjusted in 2026 terms), any additional contribution made above 50 years of age, the catch-up contribution of up to the additional amount of 7,500, would have to be made on a Roth (after tax) basis. There are crypto tax firms that will also check on the income and can avoid the trigger.
In its interpretation within a 401 (k) plan, this is a binary enforcement rule. Once any employee in your company reaches this income amount, the scheme should be designed to have the ability to bifurcate the catch-up contributions to pre-tax and Roth segments.
Does your plan require a formal amendment to stay compliant?
Yes. In the case of the large majority of legacy 401(k) plans, which were intended to be vehicles that were pre-tax only, a Plan Amendment is legally required. By 2026, the IRS will impose a requirement on the plan sponsors to introduce a language that enables elective Roth deferrals to meet the OBBBA requirement.
In this event, your existing plan document lacks a Roth; you cannot just switch on Roth catch-ups with the high earners. Unless there is a signed amendment, any person with a yearly income of more than 155,000 is forbidden by the law to make any catch-up contributions.
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What happens if a plan fails to add a Roth feature by the 2026 deadline?
There is also the strict parity requirement of the OBBBA. In case a 401(k) plan is forced to impose Roth catch-ups on high earners when there is no Roth option, the law states that no one in the plan is allowed to make catch-up contributions, irrespective of their income rate. The role of the EDD tax attorney or other experts can help in managing the deadline.
This implies that a mid-level manager who was earning 80000 would have been punished by the company when it failed to revise the plan, while the executive who was earning 200k.
How does the “Super Catch-Up” complicate the amendment process?
The OBBBA further cemented the Super Catch-Up of employees aged 60 to 63 years, where the maximum can be increased (the higher of 10,000 or 150 percent of the standard catch-up). In writing your 2026 plan amendment, you should make sure that the language takes into consideration not only the Mandatory Roth re-characterization of high earners but also the increase of the limits that affect a single cohort of age 60-63.
Conclusion
The major reason behind the 401(k) plan evolution is the use of the mandatory Roth rule, which began in 2026 with a mandatory amount of 155,000 dollars as the starting point. It has revolutionized the Roth feature as an optional perk into a necessary structural element to any highly expenditure staffed business organization. In order to make it through the OBBBA change, employers are not allowed to settle on mere payroll adjustments but rather implement planned amendments to the plans.
