2026 401(k) Contribution Limit: $24,500 Base, $11,250 Catch-Up for Ages 60–63, and the New Roth Catch-Up Rule

The 2026 401(k) contribution limit is $24,500 for the base employee elective deferral under IRC §402(g). That base limit applies to every participant in a 401(k), 403(b), or governmental 457(b) plan, and it covers the combined total of pre-tax and Roth contributions to the plan. The figure represents a $1,000 increase from the $23,500 limit that applied in 2025, driven by inflation indexing under §415(d). The IRS announces the annual indexed retirement-plan figures each fall in a notice rather than a revenue procedure — the 2026 numbers are in Notice 2025-67, published in November 2025.

The $24,500 base limit is per individual, not per plan. A participant who works for two unrelated employers during 2026 and contributes to both plans still has only $24,500 of total deferral capacity across both. The §402(g) limit is enforced through the participant’s individual tax filing rather than at the plan level, which is why cross-plan violations sometimes happen when participants change jobs mid-year. The new employer’s plan starts fresh and does not know what the previous employer’s plan already absorbed, so the participant has to manually track the cumulative total and stop deferrals at $24,500.

Participants who turn age 50 at any point during 2026 get an additional $8,000 of catch-up contribution capacity, bringing total deferral capacity to $32,500. Participants who reach age 60, 61, 62, or 63 during 2026 get a larger $11,250 super catch-up under SECURE 2.0 §603, bringing total deferral capacity to $35,750. The super catch-up is age-specific — participants who turn 64 during 2026 lose it and revert to the standard $8,000 catch-up.

The Roth versus pre-tax allocation of the $24,500 base is at the participant’s discretion in plans that offer both options. Some participants split 50/50, others allocate based on marginal tax rate and time horizon. A 35-year-old in the 24 percent bracket often benefits from Roth treatment because of the long time horizon for tax-free growth. A 55-year-old in the 37 percent bracket often benefits from pre-tax treatment because the deduction value at high marginal rates exceeds the projected retirement tax savings. The right answer depends on the participant’s overall tax picture.

Catch-up contributions for participants whose 2025 Social Security wages from the same employer exceeded $150,000 must be made on a Roth basis under SECURE 2.0 §603. This mandatory Roth catch-up rule is fully effective starting in 2026 after a two-year administrative transition under IRS Notice 2023-62. High earners who used to put their catch-up into pre-tax buckets no longer have that option. The base $24,500 deferral remains at the participant’s discretion (pre-tax or Roth), but the $8,000 or $11,250 catch-up portion is Roth-only for the affected participants. The lost current-year deduction at a 32 percent marginal rate is $2,560 per year for participants with the standard catch-up, or $3,600 per year for participants with the super catch-up.

Employer contributions (match, non-elective, profit-sharing) do not count against the $24,500 base limit. Employer contributions are added on top and are limited only by the §415(c) annual additions cap of $72,000 for 2026 (or $80,000 with the age 50+ catch-up, or $83,250 with the age 60–63 super catch-up). A participant who defers the full $24,500 and receives a 6 percent employer match on $250,000 of compensation gets $15,000 of additional employer contribution, for a total of $39,500 going into the plan for the year. The participant still has $32,500 of headroom under the §415(c) cap, which is the bucket the mega backdoor Roth fills if the plan supports it.

SIMPLE plans operate under a separate limit set. The 2026 standard SIMPLE base deferral limit is $17,000, with $4,000 of catch-up at age 50+ or $5,250 of super catch-up at age 60–63. SIMPLE plans are common at small employers with fewer than 100 employees because they avoid the administrative burden of full 401(k) plans. The trade-off is smaller individual contribution capacity. A participant moving from a 401(k) employer to a SIMPLE employer mid-year has to reset her deferral percentage to match the smaller SIMPLE limits.

Excess contributions (deferrals above the $24,500 base or the applicable catch-up limit) must be distributed by April 15 of the following year to avoid double taxation. The plan administrator usually catches single-plan excess contributions through payroll-system limits, but cross-plan excess contributions only show up when the participant files her tax return and assembles all the W-2s. The correction is a distribution of the excess amount plus any earnings on the excess, reported on Form 1099-R with the appropriate distribution code. Failure to correct by April 15 means the excess is taxed once in the year of contribution and again in the year of eventual distribution from the plan, which is a significant tax cost.

The Reed Corporation works with high-income clients on retirement-plan contribution strategy as part of our tax strategy consulting engagement. The annual planning conversation in late fall confirms the participant’s eligible compensation, catch-up tier, employer match formula, and any after-tax contribution capacity for the mega backdoor Roth strategy. The output is a contribution-allocation recommendation that makes the most of the participant’s retirement savings within the §415(c) ceiling while managing current-year tax exposure. For clients in their 50s and early 60s approaching retirement, the contribution decisions made in 2026 compound into significant retirement-wealth differences over the following 10 to 20 years. The numbers are real and worth getting right. We also coordinate the 401(k) decisions with separate IRA contribution strategy, including backdoor Roth IRA contributions for high earners who cannot contribute directly to a Roth IRA because of the §408A(c)(3) income phase-out. The full retirement-savings stack for a high-income client in 2026 can include $24,500 of 401(k) base deferral, $8,000 or $11,250 of catch-up, $20,000 to $30,000 of mega backdoor Roth contributions, $7,500 of backdoor Roth IRA, and any taxable account contributions beyond those plan limits. Coordinating across all of those buckets requires year-round attention rather than tax-season-only thinking, which is why we structure these engagements as ongoing strategy work rather than one-time filings.

The standard age 50+ catch-up contribution for the 2026 401(k) is $8,000 under IRC §414(v). That amount is in addition to the $24,500 base elective deferral limit, bringing total 2026 deferral capacity to $32,500 for participants who reach age 50 at any point during the calendar year. The catch-up is available to participants in 401(k), 403(b), and governmental 457(b) plans, with separate (smaller) catch-up amounts for SIMPLE plans under §408(p)(2)(E). The $8,000 figure represents a $500 increase from the $7,500 catch-up that applied in 2025, driven by inflation indexing.

Eligibility starts in the calendar year the participant reaches age 50, regardless of which month the birthday falls in. A participant turning 50 on December 31, 2026 has full access to the $8,000 catch-up for the 2026 plan year. The plan administrator typically allows the catch-up election to begin in January based on the participant’s birthday-year status. Some plans require the participant to actually reach age 50 before allowing the catch-up election to start, which creates a small mid-year administrative wrinkle but does not affect the annual total. The IRS does not prorate the catch-up based on the month of the birthday.

Mandatory Roth treatment applies for participants whose 2025 Social Security wages from the same employer exceeded $150,000. Under SECURE 2.0 §603, the catch-up contribution for these high-earner participants must be made on a Roth basis rather than pre-tax. The base $24,500 deferral remains at the participant’s discretion (pre-tax or Roth), but the $8,000 catch-up portion is Roth-only for the affected participants in 2026. The two-year administrative transition under IRS Notice 2023-62 ended at the close of 2025, so the rule is fully effective for the 2026 plan year. The $150,000 threshold is indexed annually under §414(v)(7)(A)(ii).

The mandatory Roth catch-up changes the planning math for high earners considerably. A 55-year-old earning $300,000 who used to defer the full $32,500 pre-tax now has $8,000 of that forced into Roth treatment. The lost current-year deduction at a 32 percent marginal rate is $2,560. The participant still gets the contribution and the future tax-free growth on the Roth portion, but the timing of the tax bite shifts from retirement to today. For participants who expect to be in a lower bracket in retirement, this is a meaningful change. For participants who expect to be in the same or higher bracket in retirement (which is more common at high income levels because of pension income, Social Security, and required minimum distributions), the Roth treatment may actually be net positive over the long run.

Participants who reach age 60, 61, 62, or 63 during 2026 are not eligible for the standard $8,000 catch-up — they get the larger super catch-up of $11,250 instead. The super catch-up is a SECURE 2.0 §603 provision that replaced (not added to) the standard catch-up for participants in that age band. Participants who turn 64 during 2026 lose the super catch-up and revert to the standard $8,000 catch-up. The super catch-up window lasts exactly four calendar years per participant. We discuss the super catch-up in detail in the next FAQ.

The catch-up election is a separate payroll-system selection in most plans. The participant elects a base deferral percentage or dollar amount (capped at $24,500 annually) and a catch-up deferral percentage or dollar amount (capped at $8,000 annually). The system tracks both buckets separately and enforces the limits independently. Some modern payroll systems combine the two into a single deferral election with automatic spillover from base to catch-up once the $24,500 base limit is reached. The combined-election approach is administratively simpler but the underlying limits work the same way.

SIMPLE plans have a separate catch-up amount of $4,000 for age 50+ participants under §408(p)(2)(E). This is significantly smaller than the 401(k) catch-up because SIMPLE plans operate under a smaller base limit ($17,000 for 2026 on the standard tier). Total SIMPLE deferral capacity for a 50+ participant is $21,000 for 2026, compared to $32,500 for a 50+ participant in a regular 401(k). SIMPLE plans are common at small employers because of the lower administrative burden. The smaller individual contribution capacity is the offsetting cost.

Solo 401(k) plans for self-employed individuals operate under the same catch-up rules as employer 401(k) plans. A self-employed participant who reaches age 50 during 2026 has access to the full $8,000 catch-up on top of the $24,500 base deferral, for total employee-side deferral capacity of $32,500. The employer-side contribution to the solo 401(k) (the 25 percent of net SE earnings calculation) is added on top of the deferral and catch-up, capped by the §415(c) ceiling of $80,000 for participants taking the standard catch-up. The combination produces meaningful retirement contribution capacity for high-earning self-employed individuals.

The Reed Corporation reviews catch-up election status for clients each fall as part of our tax strategy consulting engagement. The review confirms the participant’s catch-up tier (none, standard, or super), the applicable Roth-only mandate based on prior-year Social Security wages, the year-to-date deferral total against the §402(g) and catch-up limits, and any adjustment needed to make the most of the available capacity by December 31. Participants who underestimate their catch-up capacity sometimes leave thousands of dollars of contribution room unused each year. Those unused contributions cannot be recouped after the calendar year ends — once the December 31 deadline passes, the lost contribution space is gone permanently. A 30-minute fall review prevents most of those misses. For clients in their early 50s who are just becoming catch-up-eligible for the first time, the conversation also covers the basic mechanics of the catch-up election, the plan-administrator paperwork required to set up the contribution allocation, and the timing of the first catch-up deferral within the plan year. The transition from base-only to base-plus-catch-up status is a meaningful retirement-savings step-up that warrants the same attention as the original plan enrollment decision.

The age 60–63 super catch-up under SECURE 2.0 §603 gives participants who reach age 60, 61, 62, or 63 during 2026 an additional $11,250 of catch-up contribution capacity in place of the standard $8,000 catch-up. The super catch-up brings total 2026 deferral capacity to $35,750 for participants in this four-year window: $24,500 base deferral plus $11,250 super catch-up. The provision applies to 401(k), 403(b), and governmental 457(b) plans, with separate (smaller) super catch-up amounts of $5,250 for SIMPLE plans under §408(p)(2)(E)(ii).

The age band is specific and narrow. Participants younger than 60 get the standard $8,000 catch-up. Participants who reach age 60 during the calendar year get the super catch-up for that year. The super catch-up continues for the participant through the year she reaches age 63. Once she turns 64 during a calendar year, she loses the super catch-up and reverts to the standard $8,000 catch-up. The four-year window is the same for everyone: ages 60, 61, 62, and 63. Total maximum lifetime benefit from the super catch-up versus the standard catch-up is $13,000 (the $3,250 incremental amount times four years).

SECURE 2.0 §603 made the super catch-up an optional plan feature rather than a mandatory one. Plans had to amend their documents and update payroll systems to enable the feature. The provision took effect for plan years starting after December 31, 2024, but the operational rollout extended into 2025 and 2026 as plans completed the amendment process. By 2026, most large employer plans have the super catch-up live and available to eligible participants. Many small and mid-size employer plans also have it enabled but a small minority have not yet adopted it. A participant turning 60 during 2026 who wants the super catch-up should confirm with the plan administrator that the feature is enabled before assuming the $11,250 figure applies.

Mandatory Roth treatment applies to the super catch-up the same way it applies to the standard catch-up. Under SECURE 2.0 §603, participants whose 2025 Social Security wages from the same employer exceeded $150,000 must make the catch-up contribution (including the super catch-up) on a Roth basis. The base $24,500 deferral remains at the participant’s discretion (pre-tax or Roth), but the $11,250 super catch-up portion is Roth-only for the affected high earners. The lost current-year deduction at a 32 percent marginal rate is $3,600 per year for participants taking the super catch-up.

Real-world example: a 62-year-old executive earning $500,000 with a 6 percent employer match (capped at the §401(a)(17) limit of $360,000) defers the full $24,500 base, the full $11,250 super catch-up, and receives $21,600 of employer match. Total annual additions: $57,350. The §415(c) cap of $83,250 (for participants with the super catch-up) leaves $25,900 of additional headroom for after-tax mega backdoor Roth contributions if the plan supports them. Combined retirement-account inflow for this participant in one tax year: $83,250. Across the four-year super catch-up window from age 60 to 63, total cumulative retirement-account inflow can hit $333,000 just from this participant’s own contributions and employer match.

Participants who do not max out the super catch-up window leave significant contribution capacity on the table. The window is exactly four years and cannot be extended or recovered after age 63. A participant who skips the super catch-up entirely during the four-year window forgoes $45,000 of additional retirement contribution capacity (the $11,250 super catch-up times four years). For high earners approaching retirement, that is meaningful retirement wealth. The case for maxing the super catch-up is essentially the same as the case for maxing the regular catch-up — participants in their early 60s are typically at peak earnings and have peak ability to fund retirement contributions, so the window matches the income profile well.

The super catch-up is a one-window-per-lifetime opportunity. After age 63, the participant reverts to the standard $8,000 catch-up. There is no further enhanced catch-up beyond age 63, and no make-up provision for participants who failed to max the super catch-up during the four-year window. Participants in their late 50s should mark their calendars for the year they turn 60 and plan to increase deferrals so. The transition from standard catch-up to super catch-up at age 60 is one of the most significant retirement-savings step-ups in the entire tax code — an additional $3,250 of contribution capacity each year for four years is real money.

Participants who change employers mid-year during the super catch-up window need to coordinate the catch-up status with the new employer’s plan. The new plan starts fresh and may not immediately recognize the participant’s super catch-up status, particularly if the new employer’s plan does not yet have the super catch-up feature enabled. A participant who moves from an employer with the super catch-up to an employer without it loses the enhanced catch-up capacity for the remainder of the year. The standard $8,000 catch-up still applies at the new employer (assuming standard catch-up is enabled, which is the default for most plans), but the $11,250 super catch-up is unavailable until the new plan adopts the feature.

The Reed Corporation works with executive clients in their late 50s and early 60s on super catch-up planning as part of our tax strategy consulting engagement. The planning conversation in the year the client turns 60 covers the super catch-up election mechanics, the plan-administrator paperwork required to switch from standard catch-up to super catch-up status, the Roth-versus-pre-tax allocation decision under the mandatory Roth catch-up rule, and the coordination with employer match and any mega backdoor Roth contributions. The four-year super catch-up window from age 60 to 63 produces $13,000 of incremental retirement contribution capacity beyond what the standard catch-up provides — $3,250 more in each of the four years — while the window carries $45,000 of catch-up capacity in total for a participant who would otherwise defer nothing on top of the base. Either way the extra capacity compounds into a meaningful difference in retirement wealth over the following 10 to 20 years. Clients who make the most of the super catch-up window typically retire with $200,000 to $400,000 of additional Roth and pre-tax retirement balances compared to clients who make no catch-up contributions at all, depending on investment returns. The numbers are large enough to merit dedicated planning attention rather than being treated as an automatic payroll adjustment. For executive clients approaching retirement, the super catch-up window often overlaps with the final earnings years and the years when retirement planning becomes most active. The combination produces both the income to fund the contributions and the strategic clarity about retirement timing that makes the catch-up decision easy to commit to.

The 2026 SIMPLE IRA contribution limit is $17,000 for the base employee elective deferral under IRC §408(p)(2)(E) on the standard tier. That base limit applies to participants in SIMPLE IRA and SIMPLE 401(k) plans, both of which are simplified retirement-plan structures designed for small employers with 100 or fewer employees. The figure represents a $500 increase from the $16,500 limit that applied in 2025, driven by inflation indexing. The catch-up amounts for SIMPLE plans are $4,000 at age 50+ (up from $3,500) and $5,250 at age 60–63 under SECURE 2.0 §603.

Total 2026 SIMPLE deferral capacity at age 50+ is $21,000 ($17,000 standard base plus $4,000 standard catch-up). Total 2026 SIMPLE deferral capacity at age 60–63 is $22,250 ($17,000 standard base plus $5,250 super catch-up). These figures are meaningfully smaller than the corresponding 401(k) limits ($32,500 at 50+ and $35,750 at 60–63), which is the central trade-off of SIMPLE plans — smaller individual contribution capacity in exchange for lower administrative burden.

Employer contributions to SIMPLE plans are mandatory under §408(p)(2)(A). The employer must make either a dollar-for-dollar matching contribution up to 3 percent of compensation for participating employees, or a 2 percent non-elective contribution for all eligible employees regardless of whether they participate. The 3 percent matching contribution can be reduced to as low as 1 percent for two out of every five years under the §408(p)(2)(C)(ii) flexibility provision, but the employer must notify employees of the reduction in advance.

SECURE 2.0 §117 created an optional increased SIMPLE deferral limit for employers with 25 or fewer employees, or for employers that increase the matching contribution above 3 percent. The 2026 base deferral under that increased limit is $18,100, up from $17,600 in 2025. The age 60–63 super catch-up is $5,250 under either tier. Few SIMPLE plans use the increased limit because the offset is mandatory increased employer contributions. Most small employers stay on the standard $17,000 base limit, and getting the two tiers backwards is expensive: an employee who defers $18,100 out of a plan that never made the §117 election has an $1,100 excess deferral, which requires a corrective distribution under §402(g) and a corrected W-2. The increased-limit election is most attractive to employers with very small headcounts (under 10 employees) where the additional employer-contribution cost is manageable.

Eligibility for a SIMPLE plan requires that the employee earned at least $5,000 from the employer in any two preceding years and is reasonably expected to earn at least $5,000 in the current year. The eligibility threshold is much lower than for traditional 401(k) plans, which often have one-year-of-service or age-21 minimums. The lower eligibility threshold means that part-time and seasonal employees often qualify for SIMPLE participation. The compensation threshold can be reduced (but not eliminated) by the employer.

SIMPLE plans use the SIMPLE IRA as the funding vehicle rather than a trust-style retirement plan account. Each participating employee has an individual SIMPLE IRA in her own name, funded through payroll deductions and employer contributions. The participant has full ownership of the SIMPLE IRA from the date of contribution, with no vesting schedule for the employer contributions (unlike 401(k) plans, which can vest employer contributions over up to 6 years under §411(a)(2)(B)). Immediate vesting is a SIMPLE feature that benefits employees but is a cost to employers compared to standard 401(k) plans.

Two-year rollover rule: distributions from a SIMPLE IRA within two years of the first contribution date are subject to a 25 percent early-distribution penalty under §72(t)(6), compared to the standard 10 percent penalty for other retirement plan distributions. The two-year clock starts on the date of the first SIMPLE contribution to the participant’s account. After two years, distributions from a SIMPLE IRA are subject to the standard 10 percent penalty (with the usual exceptions for age 59½, disability, hardship, and the §72(t)(2)(N) long-term care premium carve-out under SECURE 2.0 §334). The 25 percent penalty during the first two years is a meaningful trap for participants who change employers or face early-retirement decisions during that window.

SIMPLE plans are common at small employers because the administrative burden is significantly lower than for traditional 401(k) plans. SIMPLE plans do not require annual nondiscrimination testing, do not require a separate plan document beyond Form 5304-SIMPLE or Form 5305-SIMPLE, and do not require annual Form 5500 filings. The employer just sets up the SIMPLE structure once, handles payroll deductions and employer contributions through normal payroll processing, and the plan essentially runs itself. The trade-offs are the smaller individual contribution limits, the mandatory employer contributions, the immediate vesting of employer contributions, and the 25 percent penalty during the two-year initial window. For small employers, the trade-offs usually favor SIMPLE adoption over a full 401(k) plan.

The Reed Corporation advises small-business clients on retirement-plan selection as part of our tax strategy consulting engagement. The decision between a SIMPLE plan, a SEP-IRA, a solo 401(k), or a full 401(k) plan depends on the employer’s headcount, the owner’s contribution objectives, the willingness to make mandatory employer contributions, and the administrative cost tolerance. For owner-only businesses with no employees, a solo 401(k) is almost always the best option because it allows the largest individual contribution capacity ($72,000 §415(c) cap for 2026, or $80,000 with the age 50+ catch-up, or $83,250 with the age 60–63 super catch-up) and the smallest administrative cost. For businesses with employees, a SIMPLE plan is often the right answer up to about 20 employees, with a full 401(k) plan becoming more attractive as headcount grows or as the owner’s contribution objectives exceed what SIMPLE limits allow. The plan-selection conversation usually happens during business formation or at the point where the owner first wants to start funding retirement systematically. For owners who already have a SIMPLE plan in place and are considering an upgrade to a full 401(k) plan, the transition timing matters because the two-year SIMPLE-IRA rollover rule under §72(t)(6) restricts what the participant can do with the SIMPLE balances during the transition window. We coordinate the transition timing with the participant’s overall retirement-planning calendar to minimize the friction of the plan switch.

Yes — employer matching contributions do not count against the $24,500 employee elective deferral limit under §402(g). The $24,500 limit is the maximum amount the employee can contribute through her own payroll deductions (pre-tax and Roth combined). Employer matching is added on top of the employee deferral, limited only by the §415(c) annual additions cap of $72,000 for 2026 ($80,000 with the age 50+ catch-up or $83,250 with the age 60–63 super catch-up). The two limits operate independently for the employee versus employer pieces.

Practical math for a participant maxing the $24,500 base deferral plus a 6 percent employer match on $250,000 of compensation: employee defers $24,500 (the §402(g) cap). Employer matches 6 percent of $250,000, which is $15,000. Total annual additions to the participant’s account: $39,500. The §415(c) cap of $72,000 leaves $32,500 of additional headroom for any other employer contributions (non-elective, profit-sharing, safe-harbor) or for after-tax employee contributions if the plan supports the mega backdoor Roth strategy. The $32,500 of headroom is real contribution capacity that can be deployed if the plan supports the right features.

The §401(a)(17) compensation limit caps the amount of compensation considered for employer match calculations at $360,000 for 2026. A participant earning $500,000 with a 6 percent match formula gets matched on the first $360,000 of compensation, producing $21,600 of employer match (not $30,000 on full compensation). The §401(a)(17) cap is the silent constraint that limits employer-match generosity for the highest earners. Match formulas typically run between 3 and 6 percent of compensation at large employers, with some financial-services and tech employers offering higher matches (up to 10 percent or more on a non-elective basis) to attract talent.

Roth employer match is technically allowed under SECURE 2.0 §604 but few plans have adopted it. Most employer matching contributions remain pre-tax even when the employee chooses Roth treatment for her own deferral. The mismatch produces a mixed pre-tax and Roth balance within the participant’s account, with the employee’s deferral portion taxed at the participant’s election and the employer’s match portion always taxed at distribution. Plans that adopt Roth employer match treat the match as a taxable event in the year of contribution — the participant pays tax on the match value in the contribution year, and the future growth is tax-free. This is administratively complex for plans and uncommon in practice as of 2026.

Non-elective employer contributions (sometimes called profit-sharing contributions) are an additional employer contribution beyond matching. These contributions are made to all eligible employees regardless of whether they made their own deferrals. The §415(c) annual additions cap of $72,000 includes both matching and non-elective contributions, so the combined total of all employer contributions is capped at the §415(c) headroom remaining after the employee deferral. A participant who defers $24,500 has $47,500 of §415(c) headroom for all employer contributions combined, and that number does not move if the participant also makes a catch-up contribution. Under §414(v)(3)(A) catch-ups are excluded from the annual additions limit entirely, so electing one buys the employer no extra room.

Safe-harbor contributions are a specific type of mandatory employer contribution that allows a plan to avoid annual nondiscrimination testing under §401(k)(12) or §401(k)(13). The safe-harbor formula is either a 3 percent non-elective contribution to all eligible employees or a matching contribution of 100 percent on the first 3 percent of deferred compensation plus 50 percent on the next 2 percent (effectively 4 percent on the first 5 percent of pay). Safe-harbor contributions count toward the §415(c) cap the same way other employer contributions do, but they are mandatory rather than discretionary — the employer cannot reduce or eliminate them mid-year except in narrow circumstances.

Top-heavy plan rules under §416 can also require mandatory employer contributions if the plan’s account balances are concentrated in key employees (typically owners and highly compensated employees). Top-heavy plans require a minimum 3 percent non-elective contribution to all non-key employees if the key-employee balances exceed 60 percent of total plan balances. Top-heavy rules are common at small employers where the owner’s balance dominates the plan. The mandatory 3 percent contribution counts toward the §415(c) cap but is a cost to the employer that may make plan continuation expensive.

Forfeitures from unvested employer contributions can be used to fund future employer contributions or to reduce employer contribution costs. When an employee leaves the company before fully vesting in her employer contributions, the unvested portion is forfeited under §411(a)(7) and remains in the plan. The plan administrator can use the forfeited amounts to fund future employer matches or non-elective contributions, reducing the employer’s out-of-pocket cost. Forfeitures do not affect the participant’s individual §415(c) cap — the cap applies to each participant individually based on her own contributions and the contributions made on her behalf.

The Reed Corporation models the full employer-plus-employee contribution picture for high-income clients as part of our tax strategy consulting engagement. The model incorporates the participant’s eligible compensation, the plan’s match formula, any non-elective or safe-harbor contributions, the participant’s catch-up tier, and any after-tax mega backdoor Roth capacity. The output is a clear picture of total annual retirement-account inflow and the remaining §415(c) headroom for the year. For high-income clients with generous employer plans, total annual retirement-account inflow often exceeds $80,000, which is meaningful retirement-wealth accumulation that compounds significantly over a 10- to 20-year career. Coordinating the employee-side deferral elections with the employer-side contribution structure ensures that the participant makes the most of the available capacity without leaving employer match dollars unmatched (a common mistake when participants defer too little to receive the full match) or accidentally exceeding the §415(c) cap (a less common but more serious mistake that requires corrective distributions). The year-end review confirms the year-to-date totals and identifies any final adjustments needed before December 31. For clients with multiple plans across the year (job changes, multiple employers, solo 401(k) plus W-2 plan participation), the coordination across plans is even more important because the §402(g) limit applies per individual rather than per plan. Tracking the cumulative deferrals across all plans during the year prevents the cross-plan excess deferral situations that trigger corrective distributions and double taxation. Most participants only think about the §402(g) limit during open enrollment or at year-end, but the right cadence is quarterly or at any payroll change.