Allworth Advice | What are the new 2026 Roth limits?

The IRS raised 2026 Roth IRA contribution limits to $7,500 for those under 50 and $8,600 for those 50 and older, with MAGI phase-outs moved to $153,000–$168,000 for singles and $242,000–$252,000 for married couples filing jointly (a $3,000 increase for singles and $6,000 for joint filers versus 2025). For high earners who remain above Roth IRA income limits, the note highlights that Roth 401(k) contributions have no income cap and that a "Mega Backdoor Roth" — using after-tax 401(k) contributions plus in-plan conversions or in-service rollovers — can enable additional tax-free retirement savings. A secondary consumer note advises that credit-card upgrade offers typically do not affect credit scores if the original account remains open, but consumers should confirm whether a new account is opened or a hard credit inquiry is required.

Analysis

Market structure: The 2026 Roth limit bump ($3k for singles, $6k for joint filers) is modest but structurally positive for custody/recordkeeping, asset managers and payroll/401(k) providers (beneficiaries: SCHW, BLK, STT, ADP, PAYX). The bigger structural change is work‑plan routes (Roth 401(k), Mega Backdoor Roth) which create uncapped Roth inflows for high earners and favor firms that service large employer plans and ETF/passive platforms over small active managers.

Risk assessment: Tail risks include regulatory rollback of Mega Backdoor Roth mechanics or restrictive IRS/plan-administration interpretations within 6–18 months, and operational frictions at recordkeepers that delay conversions. Near term (days–months) expect system updates and marketing; long term (5–30 years) even $3k/year at 7% compounds (~$283k over 30 years) and $6k becomes ~ $566k—meaning small annual increases materially shift asset allocation over decades.

Trade implications: Positioning should favor large, low‑fee asset managers and payroll/recordkeeping companies that capture recurring contribution flows (SCHW, BLK, ADP, STT) and underweight small active managers with high fee sensitivity (IVZ, TROW less favored). Use cash‑secured puts or 9–12 month call spreads to express exposure ahead of year‑end 2025/Jan 2026 implementation and scale into flows during 1Q–2Q2026 when plan-level adoption becomes visible.

Contrarian angles: Consensus understates the adoption curve: if ~20% of S&P 500 employers add or enhance Roth 401(k)/after‑tax features within 12 months, AUM reallocation to Roth vehicles could outpace the raw limit increase and reprice custody/ETF fee streams. Conversely, the market may overestimate flows—if plan admins lag or IRS tightens guidance, beneficiary stocks could drop 10–20% quickly; monitor Form 5500 changes and plan feature announcements as early warning signals.

Key Decisions for Investors

• Establish a 1–2% portfolio long position in Charles Schwab (SCHW) and BlackRock (BLK) combined (allocate 60% SCHW / 40% BLK within that sleeve) by buying in Nov–Dec 2025 to capture year‑end marketing flows; scale another 0.5–1% into Jan–Mar 2026 if quarterly AUM growth for BLK or new account openings at SCHW exceed peer median by +200 bps; use a hard stop at -20%.
• Buy 9–12 month call spreads on ADP or STT (bull call spread sized to 0.5–1% portfolio risk) to express upside from increased plan administration and custody fees; enter strikes ~5–10% OTM with max loss = premium, take profits at +50–100% or if the company reports <1% YoY plan client growth in any quarter.
• Establish a relative value pair: long BLK (1%) / short Invesco (IVZ) (0.5–1%) to play passive ETF inflows vs. lower‑fee active managers; rebalance if the spread tightens/widens by 15% or if IVZ reports positive net inflows reversing the thesis within two consecutive quarters.
• Use cash‑secured put selling on SCHW with 3–6 month expiries ~5% OTM to accumulate shares at a lower cost basis (target annualized premium >3%); close positions if SCHW falls more than 12% in 30 days or if IRS issues restrictive Mega Backdoor Roth guidance within 90 days.