Verify age limits, prior-year wages and contribution source posting. A staged payroll case tests the crossover from ordinary deferrals to Roth catch-ups.

January 5, 2026 · Financial Forte Staff

Historical article: prepared retrospectively using information available as of January 5, 2026.

The first payroll of 2026 is an opportunity to verify that retirement-plan preparation became working operations. New limits, wage-history files and Roth catch-up instructions may all have been approved, yet the payroll export and recordkeeper can still interpret them differently. A successful configuration screen is not proof that the right money reached the right contribution source.

Test the calculation and reconcile the actual first payroll. Distinguish ordinary deferrals from catch-up contributions, verify the relevant prior-year wage data and use the correct limits for the plan and participant. The first check should also include a simulated later-year case, because some catch-up errors will not appear while everyone remains below the basic deferral limit.

Confirm the limits and age category

For a standard 401(k) or 403(b), the 2026 basic elective-deferral limit is $24,500. The ordinary age-50 catch-up limit is $8,000, while eligible participants attaining age 60, 61, 62 or 63 during 2026 can use the higher $11,250 amount. Plan and compensation conditions still apply.[1]

An eligible participant in the ordinary group can therefore have a $32,500 total, while the higher age-based group can have a $35,750 total. Someone turning 64 during 2026 does not remain in the higher group merely because they are still 63 on the first payroll date. Use the age attained during the year for this distinction.[1]

SIMPLE plans have different limits. Governmental 457(b) plans and 403(b) arrangements can also have special contribution rules that require separate handling. An annual limit table should identify the plan category rather than using one ceiling for every employee benefit account.

Check the new year's accumulator as well. Prior-year deferrals should not accidentally reduce the new year's available room. At the same time, the prior-year employer wage information used for the Roth catch-up test must remain available. Those are different data fields serving different purposes.

Verify the Roth catch-up flag

For 2026, the higher-wage test uses qualifying 2025 employer wages exceeding $150,000. The final regulations address the wage definition, certain optional employer aggregation and other circumstances. The applicable good-faith implementation standard should be coordinated with the plan administrator.[1][2]

Do not substitute household income or current salary for the required wage data. Review employees who changed entities, became owners or had corrected wage records. Document the method and the person responsible for updating the affected-participant file.

The general administrative transition ended after 2025. Although the final regulations generally apply in 2027, that does not generally defer the statutory requirement for a private-employer plan until then. Special governmental or collectively bargained timing should be identified separately.[2][3]

If an affected employee elects pretax ordinary deferrals, the first payroll may correctly contain no Roth contribution while no catch-up amount is being made. High prior-year wages do not by themselves turn every ordinary deferral into Roth. The test must examine contribution classification, not just the presence or absence of a Roth line.

Test a contribution that crosses the basic limit

Take a hypothetical private-employer 401(k) participant who will be 61 in 2026 and had $175,000 of qualifying 2025 wages. Assume the plan permits the higher catch-up and has implemented the required Roth features. The participant's total potential elective deferral is $35,750, subject to the applicable conditions.[1][2]

For a test file only, assume the participant has already made $24,000 of ordinary deferrals and the next contribution is $1,000. There is $500 of room remaining under the $24,500 basic limit: $24,500 less the test file’s $24,000 already deferred. Under this simplified test, $500 remains ordinary deferral and the other $500 is catch-up that must be classified as Roth.

Those test-year accumulations are not actual January contributions. They are deliberately staged to verify a transition that could otherwise remain untested until much later. Confirm that payroll and the recordkeeper post the same $500 to each intended source and that the employee's election procedures support the treatment.

Also test a participant subject to the ordinary $8,000 catch-up, someone below the wage threshold and someone turning 64. If the system retained the old $7,500 ordinary catch-up while updating the basic limit, it could stop an otherwise eligible participant at $32,000 rather than $32,500. That would leave $500 of intended saving room unused.

The example tests the basic dollar-limit crossover only. Catch-up treatment can also arise from other applicable limits, including plan or testing restrictions. Have the administrator identify which cases the employer's actual process needs to support.[2]

Reconcile and document the result

Compare payroll deductions, the transmitted contribution file, the trust deposit and participant source posting. A total deposit can be correct while individual pretax and Roth sources are wrong; the $1,000 test contribution therefore needs both its total and its $500/$500 split checked. Keep the reconciliation detailed enough to identify the employee and contribution type affected.

Timely deposit responsibilities continue alongside the new tax-treatment rule. An employer should not hold contributions while an unrelated configuration question remains unresolved without obtaining appropriate guidance. Deposit timing and correction requirements depend on the applicable rules and facts.[4]

For an ERISA-covered plan, accurate administration and prudent provider monitoring can involve fiduciary responsibilities. Assign an internal owner to confirm vendor work and escalate discrepancies. The employer should know who will communicate with participants and who will approve any correction.[5]

Retain the test cases, results and resolution record, and confirm the employee-facing account record after any correction. Recheck when payroll software changes, wage data is corrected or the administrator identifies a new issue. A documented first-payroll review can reduce correction work and protect employee confidence in a benefit whose value depends on getting the details right.

Related reading

Have more questions about 2026 catch-up payroll testing and retirement plan administration? Email Dave at dave@financialforte.com to discuss your questions and next steps.

The contact invitation is current; it does not imply this contact path existed on the historical reference date.

Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.

Sources

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