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.
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.
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.
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.
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:
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.
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:
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 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.