Retirement plans aren’t just a benefit for employees — they’re one of the most effective tools for business owners and companies to align compensation, talent strategy, and tax efficiency.
As we move into 2026, understanding the latest retirement plan rules and contribution opportunities is essential for both long-term financial security and short-term tax savings.
We’ve been getting a lot of questions relating to Trump’s new tax policies, even as the landscape has continued to shift in recent years with higher IRS limits, SECURE 2.0 enhancements, and more flexibility around after-tax contributions and Roth conversions. With that, this topic is well-timed for the new year.
If your organization hasn’t revisited its retirement plan strategy, now is the time to evaluate whether you’re making the most of what’s available.
401(k) Contribution Limits in 2025–2026
For tax year 2025, the IRS allows employees to contribute up to $23,500 to a traditional or Roth 401(k). Workers aged 50 and older can contribute an additional $7,500 in catch-up contributions. Thanks to SECURE 2.0, employees between the ages of 60 and 63 may be eligible for an even higher “super catch-up” contribution of up to $11,250.
The total combined contribution limit (employee + employer contributions) is $70,000 in 2025. That means that through a mix of deferrals, employer match, profit-sharing, and after-tax contributions, participants may be able to save substantially more than the elective deferral limit alone.
New Rule for 2026: Catch-Up Contributions Must Be Roth for High Earners
Beginning in 2026, SECURE 2.0 introduces a major change affecting retirement plan tax planning for higher-income earners. If an employee makes more than $145,000 in wages (indexed for inflation) from their employer in the preceding year, any catch-up contributions they make to a 401(k) or 403(b) will be required to be made on a Roth basis — not pre-tax.
- Workers aged 50 and older can still make catch-up contributions (including the enhanced “super catch-up” for ages 60–63),
- But those contributions can no longer reduce taxable income if the employee exceeds the income threshold.
Instead, those dollars go into a Roth account where they grow tax-free and are withdrawn tax-free in retirement.
For plan sponsors, this rule has administrative implications. Retirement plans must have a Roth option available in order to accept catch-up contributions from these employees. If a plan does not currently support Roth contributions, it must be amended before the rule takes effect.
For high-earning business owners and executives, this rule changes the tax strategy conversation. While many have historically relied on pre-tax catch-ups to reduce taxable income in peak earning years, the upcoming shift means they will need to plan ahead to ensure:
- Cash flow accommodates Roth (after-tax) contributions
- Tax projections reflect the loss of a pre-tax deduction
- Retirement plans are updated to remain compliant
In short: if you are a business owner or Highly Compensated Employee (HCE), 2025 is your final year to use pre-tax catch-up contributions before they become Roth-only.
This new requirement makes it even more important to evaluate after-tax contribution strategies and Roth conversion options well in advance of 2026.
After-Tax Contributions & In-Plan Roth Conversions
One of the most overlooked opportunities is the after-tax 401(k) contribution. If your plan permits it, employees (including business owners) can contribute above the elective deferral limit, up to the overall $70,000 cap.
Here’s where the strategy becomes powerful:
- Employees can make after-tax contributions.
- If the plan allows, those contributions can be immediately converted into a Roth 401(k).
- This creates tax-free growth and tax-free withdrawals in retirement—without the income limitations of a traditional Roth IRA.
This approach, sometimes called a “mega backdoor Roth,” is especially useful for high-income earners and business owners who want to accelerate retirement savings while managing taxable income strategically.
Why This Matters for Business Owners Like You
For business leaders, retirement plan design isn’t just about employee benefits—it’s also a cornerstone of corporate tax strategy, cash flow management, and leadership succession planning. Here’s why it matters:
- Personal tax efficiency: Owners can use plan design to lower taxable income during high-earning years while still building long-term tax-free wealth through Roth conversions.
- Business cash flow planning: Employer contributions (matching or profit-sharing) reduce corporate taxable income and can be structured around annual profitability, giving owners flexibility in leaner years.
- Succession and leadership transitions: As ownership transitions to the next generation or to new leadership, a well-structured retirement plan becomes part of the overall exit strategy, ensuring owners extract value while maintaining employee stability.
Recruitment and retention: With competition for skilled talent, especially in finance, tech, and healthcare, strong retirement benefits are a differentiator. Owners who maximize plan features show commitment to long-term employee security. - Wealth diversification: Many private company owners have most of their net worth tied up in the business. Leveraging advanced retirement strategies helps shift wealth into tax-advantaged, liquid accounts outside the company.
Taken together, these factors show that retirement planning is a tax, cash flow, and succession planning tool that deserves the same attention as any other part of your business strategy. With that in mind, it’s important to look ahead at what’s changing in 2026 and how it could shape your planning decisions.
Looking Ahead to 2026
While 2026 contribution limits have not yet been announced, you can likely expect cost-of-living adjustments to increase thresholds further. In addition, evolving legislation — such as provisions of SECURE 2.0 and potential updates tied to future tax reform — will continue to expand planning opportunities.
Forward-thinking companies should start building flexibility into their retirement plan structures now, ensuring they can quickly adopt enhancements when new IRS rules are released.
Key Considerations Before Adopting Advanced Strategies
Before jumping into after-tax contributions or Roth conversions, business owners should weigh these factors:
- Plan design limitations: Not all 401(k) plans allow after-tax contributions or in-plan Roth conversions. Owners may need to amend their plan documents or switch providers to access these features.
- Nondiscrimination and compliance testing: Highly Compensated Employees (HCEs) are subject to restrictions if lower-paid employees don’t participate at meaningful levels. Failing nondiscrimination testing can force refunds of contributions. Plan design, safe harbor provisions, or cash balance plan integration can help mitigate this.
- Administrative costs: Enhanced plan features may increase recordkeeping or compliance costs. Owners should weigh whether the tax savings and recruiting benefits outweigh the added complexity.
- Timing and market considerations: Converting after-tax contributions to Roth immediately minimizes taxable earnings, but waiting can trigger additional taxes. Market volatility may influence the timing of contributions and conversions.
- State and local tax implications: While federal tax treatment is clear, state income taxes vary widely and could reduce or enhance the benefits of advanced strategies.
- Future tax law changes: Proposals to adjust tax brackets, modify minimum distributions (RMDs) ages, or impose new Roth restrictions could change the calculus. Owners should build flexibility into their plan so they can pivot as legislation evolves.
By carefully weighing these considerations, business owners can avoid costly missteps and ensure their retirement strategy delivers both immediate tax benefits and long-term financial security. Once these foundations are in place, the next step is aligning your plan with broader tax and leadership goals for 2026 and beyond.
Business Tax Planning for a Fresh Year
Understanding your company’s retirement plan is no longer optional — it’s a critical component of modern tax planning.
Whether you’re a business owner looking to maximize your own contributions or an organization seeking to strengthen benefits for employees, the opportunities in 2025 and beyond are too significant to ignore.
Learn how advanced retirement plan strategies — like after-tax contributions and Roth conversions — can align with your broader tax and leadership goals by contacting us today or exploring our Business Tax Services.