Roth Catch-up Mandate Compliance and Deemed Election Examples

Background

Effective January 1, 2026, catch-up eligible participants who are High Earners must make catch-up contributions on the Roth basis. The industry has been using the term Highly Paid Individuals, so we will use both terms for the sake of clarity and consistency with other published articles. Before delving into the details on how to administer this new Roth mandate, let’s review the compensation thresholds that make a participant a High Earner and a contribution a catch-up contribution.

IRS Publishes New Limits

The IRS published the limits applicable to retirement plans in 2026 on Notice 2025-67, as published in our previous blog From the Diamond to the Desk: 2026 Retirement Plan Limits Step Up to the Plate. 2026 contribution limit changes that affect the administration of the Roth catch-up mandate include the 402(g) deferral limit increase to $24,500 and the catch-up limit increase to $8,000. Catch-up eligible participants can contribute a maximum of $24,500 + $8,000 = $32,500 or if they are achieve ages 60-63 during the plan year, a maximum of $24,500 + $11,250 = $35,750.

High Earner/Highly Paid Individual Limits

The threshold for determining who is a High Earner, or Highly Paid Individual, for purposes of the Roth Catch-up Mandate that will be effective on January 1, 2026 also increased. Specifically, catch-up eligible High Earners who show more than $150,000 in FICA wages on their 2025 Form W-2 must contribute 2026 catch-up contributions of $8,000 or 2026 super catch-up contributions of $11,250 on the Roth basis.

Affirmative Election vs. Deemed Election

Affirmative Elections: To comply with the Roth-catch-up mandate, some plan sponsors are requiring that each Highly Paid Individual make an affirmative election to make catch-up contributions on a Roth basis. Affirmative elections can take any approach that clearly shows an intention to achieve the $32,500 or the $35,750 maximum contributions that include a Roth catch-up, whether they spread the Roth contributions of $8,000 (or more) evenly through the year or switch to Roth contributions after pre-tax deferrals of $24,500 have been maximized. The mechanics of the contribution options available may depend upon the capabilities of each employer’s payroll provider, and the affirmative election forms should match the intended policies and procedures. For participants who do not make an affirmative election to make a Roth catch-up contribution, plan sponsors requiring an affirmative election will stop withholding deferral contributions after the participant has achieved a $24,500 contribution. Affirmative elections will ensure that no participant contributes a Roth catch-up against his or her wishes….a good goal. However, some participants who fail to respond to the request for a compliant affirmative election may fall short of the maximum contribution due to lack of response.

Deemed Elections: To avoid such shortfalls, plan sponsors may consider the Deemed Roth catch-up election option, under which existing elections to make pre-tax catch-up contributions will be treated as elections to make catch-up contributions on a Roth basis, as long as participants have an effective opportunity to change the deemed election, similar to the automatic enrollment rules. Behavioral finance studies have historically shown that retirement contribution choices made by the employer on behalf of the participants result in higher participation levels, and higher contributions, which enhances retirement readiness….a better goal.

Deemed elections are especially useful when participant elections only choose deferrals of a percentage of each payroll or dollar amount per payroll up to $32,500 or $35,725, but the chosen contributions do not include enough Roth dollars to comply with the Roth catch-up mandate. Plan sponsors have flexibility to automatically switch participant contributions to the Roth basis through two deemed election mechanisms:

• Method 1: Once the participant’s total deferrals, including pre-tax and Roth contributions, get to the 402(g) limit, which is $24,500 for 2026, or
• Method 2: Switch the deferrals to Roth once the pre-tax contributions get to the 402(g) limit. Method 2 allows all Roth contributions made during the year to count towards the Roth catch-up mandate.

In my opinion, the burden of requesting affirmative elections from all catch-up eligible participants will exceed the burden of sending a deemed election notice, but every plan sponsor must make its own decision based on their participant demographics, the capabilities of their payroll providers, the expertise of their plan personnel, and what works for their company.

Our previous blog, Catch the Catch-Up Final Regulations Before They Catch You Off-Guard explains all the complexities of administering the Roth catch-up mandate in accordance with the Final Regulations. Please refer to that blog for a full discussion of the rules.

In response to requests from our audit clients, this blog will provide examples of the Deemed Elections Methods 1 and 2, for participants contributing to Roth and pre-tax sources evenly throughout the year, as well as for participants contributing only pre-tax, or only Roth contributions, as follows:

Method 1 disregards Roth deferral contributions made before achieving the 402(g) limit ($24,500 for 2026). Once the participant’s total deferrals equal the 401(a)(30) limit, which is the employer-based individual 402(g) limit, or $24,500 for 2026, the plan sponsor switches all deferral contributions to the Roth basis:

Deemed Election Method 1 would prevent a participant from contributing $24,500 on a pre-tax basis, but a participant can change Deemed Election Method 1 by making an affirmative election to continue pre-tax contributions such that the pre-tax deferral withholdings will amount to $24,500 and Roth contributions will total $8,000 by year-end. The result of this affirmative election is the same as what would have been achieved under Deemed Election Method 2, described next.

Method 2 gives the participant credit for Roth deferral contributions made throughout the year by applying all Roth contributions to the Roth Catch-up Mandate. Catch-up eligible participants who have elected to contribute $8,000 in Roth and $24,500 in pre-tax in equal amounts throughout the year will not experience any changes to their contributions in a plan that uses Deemed Election Method 2. See the example below for a catch-up eligible and a super catch-up eligible participant:

Once a Roth, Always a Roth

If a participant who chooses to make Roth contributions throughout the year terminates employment before reaching the 402(g) limit, or transfers to another member of a controlled group that is not aggregated to identify the High Earners (Highly Paid Individuals) before reaching the 402(g) limit, the Roth contributions do not constitute an error. Recharacterization from Roth to Pre-tax is not required and is not an option. Similarly, if the W-2 FICA wages used to identify a High Earner (Highly Paid Individual) is amended, and the person is no longer required to make Roth catch-ups, the deemed election would only need to be suspended prospectively. No change is needed for Roth deferrals already made. Once a Roth, always a Roth.

Methods 1 & 2 – Same Treatment – Participants who have made an election to contribute the maximum 402(g) limit plus catch-up completely in pre-tax dollars or completely in Roth dollars would be treated the same under Method 1 or Method 2. If the participant does not wish to make Roth catch-up contributions, the participant would make an affirmative election to opt-out of a catch-up contribution. The deemed-election methodology is presented below, assuming the participant does not opt out of the catch-up contribution:

The deemed election method makes a choice to comply with the Roth catch-up mandate on behalf of the participant, rather than requiring affirmative elections. Plan sponsors who plan to use the deemed election methods should contact their third-party administrators and recordkeepers before year-end to ensure that the proper notices are distributed. Additionally, plan sponsors should collaborate with their payroll providers to understand their responsibilities with respect to switching contributions to Roth. Plan sponsors may be responsible for coding contributions as Roth contributions on the payroll once the threshold is achieved under Method 1 or Method 2. The process may not be automatic.

For example, if a payroll provider will only inform a deemed election employer when each High Earner has achieved either total deferrals of $24,500 under Method 1 or pre-tax deferrals of $24,500 under Method 2, it will be the payroll person’s responsibility to do the math to split the May payroll differently between pre-tax and Roth under the chosen Deemed Election method, as demonstrated below:

Please note that Method 1 prevents this participant from contributing the full 2025 402(g) limit on a pre-tax basis, unless the participant makes an affirmative election to continue pre-tax contributions as scheduled for one more payroll, then begin the Roth catch-up contributions. In effect, a participant’s affirmative election can force an employer who has chosen Deemed Election 1 to administer that participant’s contributions consistently with Method 2.

Additionally, payroll providers may expect plan sponsors to be actively involved in the identification of Highly Paid Individuals, (HPIs), which is a separate determination than the Highly Compensated Employees (HCEs) identified for the discrimination test. Please refer to our previous blog Catch the Catch-Up Final Regulations Before They Catch You Off-Guard for details on the differences between HCEs and HPIs.

Assume Nothing

Assuming that service providers will take care of administering the Roth catch-up mandate will almost certainly land employers in correction-land. Please refer to our previous blog Catch the Catch-Up Final Regulations Before They Catch You Off-Guard for a discussion of the available corrections.

Resistance is Futile…Comply!

Plan sponsors cannot wish this away! Collaboration with payroll companies, bundled recordkeepers, and third-party administrators, as applicable, will be instrumental to the success of the Roth catch-up mandate administration. If anything falls through the cracks, collaboration with additional service providers, like your plan auditor or ERISA counsel, to correct the operational errors may become necessary. To stay out of the correction process, plan sponsors should be pro-active and document practices and procedures that will be in place for the Roth catch-up mandate before the end of 2025. Don’t resist, only to make it another broken new year resolution. Comply!