6.2 IRC §402(g) Annual Limits, Age-50 Catch-Up & SECURE 2.0 Super Catch-Up

6.2 IRC §402(g) Annual Limits, Age-50 Catch-Up & SECURE 2.0 Super Catch-Up

[!IMPORTANT] The Individual Nature of the §402(g) Limitation: While the vast majority of qualified retirement plan qualification rules—such as coverage testing under IRC §410(b), nondiscrimination under IRC §401(a)(4), and annual additions limits under IRC §415(c)—are evaluated on a plan-by-plan and employer-by-employer basis, the limitation on elective deferrals under IRC §402(g) is fundamentally distinct. The §402(g) cap applies directly to the individual participant across all plans in which they participate during a calendar year, regardless of whether the employers are related or unrelated, and regardless of whether the plans operate on fiscal or calendar plan years.

Third-Party Administrators and plan consultants must navigate both individual multi-employer deferral limits and plan-level compliance. Failing to properly identify and correct excess deferrals by the non-extendable statutory deadline of April 15 leads to harsh, non-waivable double taxation that severely penalizes the participant.

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The IRC §402(g) Annual Deferral Ceiling

Under IRC §402(g)(1), the maximum aggregate amount of elective deferrals an individual may exclude from gross income in any taxable year is capped at a statutory dollar limit, adjusted annually for cost-of-living increases in $500 increments pursuant to IRC §402(g)(4).

Historical and Indexed Statutory Limits

• Tax Year 2024: $23,000
• Tax Year 2025: $23,500
• Tax Year 2026: $24,500

Scope of Universal Individual Aggregation

An individual must aggregate all elective deferrals made during the calendar year across all of the following plan types, regardless of employer affiliation:

1. IRC §401(k) Cash or Deferred Arrangements (both pre-tax deferrals and designated Roth contributions);
2. IRC §403(b) Tax-Sheltered Annuity (TSA) plans;
3. IRC §408(k)(6) Salary Reduction Simplified Employee Pension (SARSEP) plans; and
4. IRC §408(p) Savings Incentive Match Plan for Employees (SIMPLE IRAs and SIMPLE 401(k)s).

[!NOTE] SIMPLE Plan Sub-Limits: Although elective deferrals to a SIMPLE IRA or SIMPLE 401(k) plan are subject to a lower statutory limit ($16,000 in 2024; $16,500 in 2025; $17,000 in 2026), any deferral into a SIMPLE plan counts dollar-for-dollar against the individual's overall §402(g) ceiling if they also participate in a standard 401(k) or 403(b) plan during the same calendar year.

The IRC §457(b) Exception: Non-Aggregation Shield

A vital statutory exception exists for IRC §457(b) eligible deferred compensation plans maintained by state and local governmental entities and tax-exempt organizations:

• Under IRC §457(c), deferrals to an eligible §457(b) plan are governed by a completely separate statutory limit ($23,000 in 2024; $23,500 in 2025; $24,500 in 2026).
• No Aggregation with §401(k) or §403(b): Elective deferrals made to a §457(b) plan do not aggregate with deferrals made to an IRC §401(k) or §403(b) plan! A public school teacher or municipal hospital physician participating in both a 403(b) plan and a governmental 457(b) plan can defer the full statutory maximum to both arrangements ($24,500 + $24,500 = $49,000 total in 2026, excluding catch-ups).

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Excess Deferrals and the April 15 Statutory Correction Window

When an individual's total elective deferrals exceed the IRC §402(g) dollar limit for a calendar year, the excess is termed an Excess Deferral.

Single-Employer vs. Multiple-Employer Violations

• Single Employer / Controlled Group: If an employee exceeds §402(g) within a single plan or across two plans maintained by members of the same controlled group (IRC §414(b)/(c)), the plan sponsor possesses direct payroll knowledge of the excess. The plan document must provide that the excess cannot be accepted, and failure to correct constitutes an operational plan qualification failure under IRC §401(a)(30).
• Multiple Unrelated Employers: If an employee changes jobs mid-year or works for two unrelated employers simultaneously (e.g., Company X by day, Company Y by night) and defers $15,000 into Company X's 401(k) and $15,000 into Company Y's 401(k), neither employer's payroll system can detect the violation. Under IRC §402(g)(2)(A), the participant must take affirmative responsibility to notify one or both plan administrators no later than April 15 (or an earlier plan deadline, typically March 1) of the amount of the excess allocable to each plan.

The Mandatory Correction Deadline: April 15

Under IRC §402(g)(2)(A)(ii), the plan must distribute the excess deferral, along with any Net Allocable Income (NIA), no later than April 15 following the close of the calendar year in which the excess occurred.

[!CAUTION] No Extensions Allowed: The April 15 deadline is established by federal statute and cannot be extended by filing a tax extension (Form 4868) or for any administrative reason. If April 15 falls on a weekend or legal holiday, the deadline shifts to the next business day under IRC §7503.

Net Allocable Income (NIA) Formula

Under Treasury Regulation §1.402(g)-1(e)(5)(ii), the corrective distribution must include the net income or loss allocable to the excess deferral for the calendar year. Plans may calculate NIA using any reasonable, non-discriminatory method that mimics the actual earnings rate of the account, or use the standard regulatory allocation formula:

$\text{NIA} = \text{Excess Deferral} \times \frac{\text{Net Account Earnings for the Calendar Year}}{\text{Beginning Account Balance} + \text{Total Calendar Year Contributions}}$

• Gap-Period Income: Income earned between the close of the calendar year (December 31) and the actual date of the corrective distribution is known as "gap-period income." Under current Treasury Regulations, plans are not required to calculate or distribute gap-period income on excess deferrals unless the written plan document explicitly mandates it.

Matching Contribution Forfeiture Mandate

If an employer provided matching contributions based on elective deferrals that are subsequently refunded as excess deferrals, the plan administrator must forfeit the corresponding matching contributions pursuant to Treas. Reg. §1.401(m)-1(b)(4)(iii). Permitting a participant to retain matching contributions on deferrals that exceeded statutory limits violates the nondiscrimination requirements of IRC §401(a)(4).

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Tax Fallout: Timely Correction vs. The Catastrophic Missed Deadline Trap

+-----------------------------------------------------------------------------------------+
|                   TAX TREATMENT OF IRC §402(g) EXCESS DEFERRALS                         |
+-----------------------------------------------------------------------------------------+
|  Timing of Correction           Principal Taxation            Earnings Taxation         |
|  ---------------------------    -------------------------    -------------------------  |
|  TIMELY CORRECTION              Taxable in Year Contributed   Taxable in Year Distributed|
|  (Distributed by April 15)      (Prior Tax Year Form 1040)   (Current Year Form 1099-R) |
|                                 • Pre-Tax: Add to gross inc.  • Form 1099-R Code 8      |
|                                 • Roth: Already taxed (basis) • NO 10% §72(t) Penalty   |
|                                                                                         |
|  LATE CORRECTION                PERMANENT DOUBLE TAXATION     Taxable when Distributed  |
|  (Missed April 15 Deadline)     1. Taxed in Year Contributed  • Ordinary income tax     |
|                                 2. Taxed AGAIN upon payout!   • Subject to §72(t)       |
|                                 • NO tax basis granted!       penalty if applicable     |
+-----------------------------------------------------------------------------------------+

1. Tax Consequences of Timely Distribution (On or Before April 15)

• Pre-Tax Principal Refund: Includible in the participant's gross income for the year in which the contribution was made (the prior calendar year). The participant must report this on their Form 1040 (Line 1h) for the year of deferral. If the participant already filed their return, they must file an amended return (Form 1040-X). The plan issues Form 1099-R with Code P.
• Roth Principal Refund: Because designated Roth deferrals were already included in gross income when contributed, the principal refund is received tax-free. The plan issues Form 1099-R with Code B.
• Allocable Earnings Refund: Includible in the participant's gross income for the taxable year in which the distribution is actually made (the current calendar year). Reported on Form 1099-R with Code 8.
• Penalty Exemption: Timely distributed excess deferrals and allocable earnings are exempt from the IRC §72(t) 10% early distribution penalty.

2. Tax Consequences of Late Distribution (After April 15)

If the April 15 deadline is missed, the excess deferral cannot be distributed from the plan until the participant experiences an independent statutory distributable event (e.g., severance from employment, death, disability, or attainment of age 59½).

When eventually distributed, the excess suffers disastrous double taxation under Treasury Regulation §1.402(g)-1(e)(8)(iii):

1. First Tax Hit: The excess deferral is includible in gross income in the year contributed, because it exceeded the §402(g) limit and could not be excluded.
2. Second Tax Hit: The excess deferral is includible in gross income AGAIN upon distribution! The participant receives zero tax basis for the previously taxed contribution.
3. Roth Double Hit: If a late excess deferral was designated as Roth, the distribution loses its qualified status, resulting in potential double taxation on what should have been tax-exempt retirement funds.

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Age-50 Catch-Up Contributions Under IRC §414(v)

Enacted under EGTRRA and codified at IRC §414(v), catch-up contributions enable older participants to accelerate their retirement savings during their peak earning years.

Catch-Up Contribution Limits

• Tax Year 2024: $7,500
• Tax Year 2025: $7,500
• Tax Year 2026: $8,000

Eligibility: The Attainment Rule

To be eligible to make a catch-up contribution, a participant must attain age 50 on or before the last day of the calendar year (December 31). An individual who celebrates their 50th birthday on December 31, 2026, is legally eligible to make catch-up contributions starting on January 1, 2026.

The Three Catch-Up Triggers

Under Treasury Regulation §1.414(v)-1(b), a contribution is classified as a catch-up contribution only if it exceeds an applicable limit. A catch-up contribution is triggered when deferrals exceed the lowest of:

1. The Statutory Limit: The IRC §402(g) limit ($24,500 in 2026);
2. The Employer Plan-Imposed Limit: A limit written into the plan document that restricts deferrals to a lower threshold (e.g., plan document caps deferrals at 15% of compensation, or limits deferrals to $15,000 annually); or
3. The Actual Deferral Percentage (ADP) Limit: If an HCE makes deferrals that exceed the nondiscrimination cap under the annual ADP test (IRC §401(k)(3)), the excess deferrals are automatically recharacterized as catch-up contributions (up to the catch-up limit) rather than being refunded as corrective distributions!

Key Statutory Protections for Catch-Up Contributions

• Exempt from IRC §415(c): Catch-up contributions are not counted toward the IRC §415(c) annual additions limit ($69,000 in 2024; $70,000 in 2025; $72,000 in 2026). In 2026, a participant age 50+ can accumulate total annual additions of $80,000 ($72,000 §415(c) limit + $8,000 catch-up).
• Exempt from ADP Testing: Catch-up deferrals are excluded from the numerator and denominator of the ADP test, shielding the plan from test failures.
• Universal Availability Mandate (IRC §414(v)(4)): If a plan allows catch-up contributions, it must provide the catch-up opportunity to all catch-up eligible participants across all qualified plans maintained by the employer and all members of its controlled group.

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SECURE 2.0 §109: The "Super Catch-Up" for Ages 60 to 63

Section 109 of the SECURE 2.0 Act created an enhanced catch-up contribution tier—popularly designated the "Super Catch-Up"—effective for taxable years beginning after December 31, 2024 (effective 2025 and beyond).

The Statutory Super Catch-Up Formula

Under IRC §414(v)(2)(E), for individuals who attain ages 60, 61, 62, or 63 during the taxable year, the catch-up contribution limit is increased to the greater of:

1. $10,000, OR
2. 150% of the age-50 catch-up limit in effect for 2024 ($7,500), as indexed after 2025.

Calculated Limits Across Plan Years:

• Tax Year 2025: Regular catch-up was $7,500. 150% of $7,500 = $11,250. Since $11,250 > $10,000, the 2025 Super Catch-Up limit was $11,250 (allowing total deferrals of $23,500 + $11,250 = $34,750).
• Tax Year 2026: 150% of the 2024 age-50 limit ($7,500) is $11,250, which exceeds $10,000. IRS Notice 2025-67 held the figure at $11,250 for 2026 (allowing total deferrals of $24,500 + $11,250 = $35,750). Note the trap: the super catch-up is not 150% of the current-year $8,000 catch-up, which would produce $12,000.

The Age-64 Cliff

The Super Catch-Up applies strictly to ages 60, 61, 62, and 63. When an employee turns age 64 during a calendar year, their catch-up contribution allowance automatically drops back to the standard age-50 limit ($8,000 in 2026).

+-----------------------------------------------------------------------------------------+
|                   2026 DEFERRAL LIMIT SPECTRUM BY PARTICIPANT AGE                       |
+-----------------------------------------------------------------------------------------+
|  Age Attained in 2026    Standard Deferral   Catch-Up Allowance   Total Maximum Deferral|
|  --------------------    -----------------   ------------------   --------------------- |
|  Under Age 50            $24,500             $0                   $24,500               |
|  Ages 50 – 59            $24,500             $8,000 (Standard)    $32,500               |
|  Ages 60 – 63            $24,500             $11,250 (Super)      $35,750               |
|  Age 64 and Older        $24,500             $8,000 (Standard)    $32,500               |
+-----------------------------------------------------------------------------------------+

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SECURE 2.0 §603: Mandatory Roth Catch-Up for High Earners

Section 603 of SECURE 2.0 enacted a sweeping mandate requiring higher-income participants to make catch-up contributions on a Designated Roth basis.

Statutory Rule and Thresholds

Under IRC §414(v)(7), if a participant's wages subject to FICA taxes (IRC §3121(a)) from the employer sponsoring the plan in the preceding calendar year exceeded $145,000 (adjusted for inflation to $150,000 in 2026 pursuant to §414(v)(7)(E)), all catch-up contributions made by that employee in the current year must be made as Designated Roth contributions.

Administrative Implementation & IRS Notice 2023-62

Because payroll providers and plan administrators faced severe technical hurdles tracking prior-year W-2 wages and configuring dual pre-tax/Roth catch-up pipelines, the IRS issued IRS Notice 2023-62:

• Two-Year Administrative Transition Window: The IRS instituted an administrative relief period, delaying mandatory enforcement until taxable years beginning after December 31, 2025.
• Operational Effect: The rule becomes mandatory for plan operations starting in 2026.

Key Nuances Tested on ASPPA QKA Exams:

1. The "No-Roth, No-Catch-Up" Trap: If an employer's plan document does not offer a Designated Roth contribution feature, any employee earning over $145,000 (indexed to $150,000 in 2026) in prior-year FICA wages is completely barred from making any catch-up contributions! The employer cannot waive the rule.
2. Lookback Employer Restriction: The $145,000/$150,000 threshold applies solely to FICA wages paid by the specific employer sponsoring the plan. If an executive earned $200,000 at Company A in 2025 and moves to unrelated Company B in 2026, Company B looks solely at wages paid by Company B in 2025 ($0). The executive is not subject to mandatory Roth catch-up at Company B in 2026!
3. Self-Employed Exemption: Notice 2023-62 confirmed that self-employed individuals (partners in partnerships and sole proprietors) do not have FICA wages under IRC §3121(a) (their earnings are self-employment income under IRC §1402(a)). Therefore, self-employed individuals are not subject to the mandatory Roth catch-up rule.

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Practical Worked Scenario: Multi-Plan Excess Deferral and NIA Correction

To master ASPPA QKA administrative mathematics, consider this multi-employer compliance scenario:

The Situation

• Employee: Daniel, age 45 (not catch-up eligible).
• Calendar Year: 2026 (IRC §402(g) limit = $24,500).
• Employer X (Jan 1 – Jun 30, 2026): Daniel deferred $16,000 into Employer X's calendar-year 401(k) plan.
• Employer Y (Jul 1 – Dec 31, 2026): Daniel deferred $14,000 into Employer Y's calendar-year 401(k) plan.
• Total 2026 Deferrals: $16,000 + $14,000 = $30,000.

Step 1: Identify Total Excess Deferrals

$\text{Total Excess Deferrals} = \text{Total Deferrals} - \text{IRC Section 402(g) Limit}$ $\text{Total Excess Deferrals} = \$30,000 - \$24,500 = \mathbf{\$5,500}$

Step 2: Participant Notification and Allocation

Daniel discovers the excess in January 2027. Under IRC §402(g)(2)(A), Daniel elects to allocate the entire $5,500 excess deferral to Employer Y's plan and files formal written notice with Employer Y on February 15, 2027.

Step 3: Calculate Net Allocable Income (NIA) in Employer Y's Plan

• Daniel's Beginning Account Balance in Plan Y on July 1, 2026: $0
• Total 2026 Contributions in Plan Y: $14,000
• Total Plan Y Account Value on December 31, 2026: $15,400
• Net Account Earnings in Plan Y for 2026: $15,400 - $14,000 = $1,400

Using the regulatory NIA formula: $\text{NIA} = \$5,500 \times \left( \frac{\$1,400}{\$0 + \$14,000} \right) = \$5,500 \times 0.10 = \mathbf{\$550}$

Step 4: Corrective Distribution Execution

Employer Y distributes $6,050 ($5,500 excess deferral + $550 NIA) to Daniel on March 25, 2027 (prior to the April 15 statutory deadline):

• Tax Year 2026 Impact: Daniel must include $5,500 in gross income on his 2026 Form 1040 (Line 1h). Employer Y issues Form 1099-R with Code P.
• Tax Year 2027 Impact: Daniel must include $550 of allocable earnings on his 2027 Form 1040. Employer Y issues Form 1099-R with Code 8.
• Penalty: $0 (exempt from IRC §72(t)).
• Employer Match: If Employer Y matched 50% on deferrals, Employer Y must forfeit $2,750 ($5,500 × 50%) of matching contributions to preserve plan nondiscrimination.

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Common ASPPA QKA Exam Traps

• Exam Trap 1: The December 31 Catch-Up Rule: Questions frequently describe an employee whose 50th birthday is in late November or December. Students often assume catch-up contributions can only be made after the 50th birthday. Under IRC §414(v)(5), eligibility is based on turning 50 by December 31, permitting catch-up contributions on day one of that calendar year.
• Exam Trap 2: Aggregating Governmental 457(b) Plans: An exam question will ask for the maximum deferral for an employee eligible for both a 403(b) and a governmental 457(b). Remember: IRC §457(b) deferrals do not aggregate with §402(g). The employee can max out both limits independently.
• Exam Trap 3: Forfeiting Matching on Excess Deferrals: Administrators frequently forget that matching contributions associated with refunded excess deferrals must be forfeited under Treas. Reg. §1.401(m)-1(b)(4)(iii). Leaving the match in the participant's account violates qualification.
• Exam Trap 4: The April 15 Tax Filing Extension Illusion: Candidates frequently believe that filing an extension on Form 4868 extends the §402(g) refund deadline to October 15. The April 15 deadline is a rigid statutory date that cannot be extended.