Are Separate Deferrals Needed for Regular Contributions and Roth Catch-Ups?

Q: I am confused about the new mandatory Roth catch-up rules for participants who make more than $145,000 in FICA wages and would like clarity. It sounds like the rule requires a participant to select catch-up contributions separate from the regular deferral, meaning that, in 2026, deferrals would go into both the pre-tax account and Roth account, starting at the beginning of the year. Then, if the regular deferrals do not meet the annual limit, a correction will need to be made. That would be a nightmare for taxes, and I hope I am misunderstanding.

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: You are right, that would be a nightmare!

As we stated in a prior column, the proposed regulations clarify that a participant who makes more than the $145,000 (indexed) threshold does not need to make a separate catch-up election for such contributions to be treated as Roth. Elective deferrals are generally not treated as catch-up contributions until they exceed the Internal Revenue Code Section 402(g) limit ($23,500 in 2025), meaning that if a participant elected only pre-tax deferrals, everything a participant defers up to the 402(g) limit would go into the pre-tax account.

The proposed regulations permit plan administrators and employers to deem any catch-up contributions made by those earning more than $145,000 in FICA wages as Roth contributions in 2026 (the “deemed Roth catch-up election”), and no special salary deferral or other election is required. So as long as the participant is given an effective opportunity to opt out of the deemed Roth catch-up election, deferrals greater than the 402(g) limit would automatically be treated as Roth catch-up contributions for the remainder of the year, and there would be no need for corrections.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issmarketintelligence.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.