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New Roth catch-up rule: Why you may need to rethink separate elections for 401(k) contributions

New roth catch-up rule

The industry has been abuzz with the new Roth catch-up rule, which takes effect in 2026. The main theme is that catch-up contributions for highly paid individuals (specifically, those with prior-year FICA wages north of $150,000) must be made with Roth dollars — not pre-tax dollars. An important, but lesser discussed topic is that an organization’s method for administering catch-up contributions can be consequential to following the rule. Let’s dive in… 

Background 

As a reminder, catch-up contributions in a 401(k) plan are employee deferrals above and beyond the standard limit specified in Internal Revenue Code, Section 402(g), which is $24,500 for 2026. For employees turning ages 50 to 59 or 64+ during the year, the catch-up limit is $8,000, which means a total of $32,500 can be saved. For employees turning ages 60 to 63, the catch-up limit is $11,250, for a total of $35,750. 

There are two main ways to administer employee deferral elections in a 401(k) plan for those eligible for catch-up contributions: the “single election” method and the “separate elections” method. 

Single election method 

Under this method, a participant chooses one savings amount (or percentage of pay) to be deferred each paycheck, and deferrals are eventually cut off as necessary at the applicable total limit based on age. 

Let’s assume Jane Doe is 52 years old and wants to defer the maximum of $32,500, with uniform savings across the year’s biweekly payrolls. Let’s also assume that, except for the Roth catch-up requirement, she wants to save with pre-tax dollars. Her deferrals would look like this:    

single election method chart 

As you can see from the table, her standard deferrals are cut off at the $24,500 limit in the middle of the 20th payroll period and then her deferrals “flip” over to catch-up contributions the rest of the year. Under the single election method, the $8,000 in catch-up contributions during the last seven payroll periods would be made with Roth dollars per the new rule. 

Separate elections method 

Under this method, a participant makes a separate election for each of the standard and catch-up “buckets,” each of which receives deferrals from the start of the year and is cut off at the respective limit. 

Using Jane’s example again, her deferrals would look like this: 

separate elections method chart 

Under the separate elections method, the $8,000 in catch-up contributions that are spread across all 26 payroll periods would be made with Roth dollars to satisfy the new rule. 

The rub 

Since Jane’s intention is to save with pre-tax dollars — and only Roth dollars where required under the new rule — the separate elections method accomplishes her goal only if she ultimately defers the full $24,500 in pre-tax dollars. This may not be accomplished if one of the following events occurs: 

  • Jane decides to decrease her savings rate before the end of the year; or 
  • Jane does not work the full year (e.g., retires, is laid off, finds another job).


 

Roth chart 

As you can see from the table, her deferrals end after the 18th payroll. Her shortened saving schedule results in only $22,500 in total deferrals for the year. Despite $5,538.46 being deferred into the catch-up bucket, these deferrals are technically not catch-up contributions because they do not represent deferrals in excess of $24,500 — the 402(g) limit. 

The time to change 

The separate elections method may be more appealing to some organizations that have used it historically. However, the new Roth catch-up rule introduces administrative complexities that suggest it’s time to rethink. The single election method is common, simple for participants to understand and simple to administer. And best of all, it doesn’t categorize catch-up (and now Roth catch-up) until it needs to do so. 

Please email us at contact@trueplanadvisors.com if you’d like to discuss this topic with one of our consultants. 

TruePlan Benefit and Retirement Advisors is a marketing name of Healthcare Community Securities Corp., member FINRA/SIPC, and an SEC Registered Investment Advisor. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Past performance is not indicative or a guarantee of future returns. 

This content is for informational purposes only. It has been partially generated from an AI language model, which may not always be exhaustive or tailored to individual circumstances. We encourage you to contact one of our experts for more information. We assume no liability arising from any use of this content.

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