John Feldt ERPA CPC QPA

Ditto.

They can only defer from W-2 wages not yet paid. They can only defer from wages paid once the 401(k) plan document and trust agreement is executed (signed). They have to be eligible under the terms of the plan. A deferral election is also required. Other than noting today’s date on the calendar, and the other 50 requests coming in today for a plan document to allow deferrals in 2025, that all sounds easy, right?

Peter, you asked: Is there another reason why a plan’s sponsor might prefer not to allow nonhighly-compensated employees to make an employee (after-tax) contribution? Yes, there is. When you run an ACP test, you only include the employees eligible for the match. So, if the match allocation has conditions, like last day or 1000 hours, then those employees aren’t in the ACP test. Yay. BUT, as soon as you allow after-tax, everyone eligible to contribute after-tax is now in your ACP test, even those that did not meet the conditions for the match. That could add a whole lot of NHCEs with zeros to the ACP test.

Right, it can be funded as after tax only up to the lesser of 100% of compensation or the $70,000 dollar limit. The extra $7,500 catch-up is only available as a deferral.

Meaning, you evaluate the plan as a whole for determining if all the NHCEs got a gateway. Keep in mind if the OEE group itself is not included with the others in testing, then no gateway applies to the OEE group - unless for some very strange reason the OEE group had an HCE getting more as a percent of pay than the younger NHCEs in that OEE group and you cross-tested the OEEs - but I’ve never seen that happen.

Am I understanding this correctly? Yes. Is there any way to bypass the testing for mega roth backdoor after tax contributions? Have zero eligible nonhighly compensated employees, no testing needed. In other words, employing only highly compensated employees who meet the age/service/entry requirements = no testing needed.

And the plan must have the safe harbor provisions. It is not considered safe harbor if the plan does not say it is safe harbor.

Tangentially related, perhaps: my understanding that a housing allowance paid is not counted for 415 compensation purposes and a deferral cannot be withheld from such a payment (it’s already not subject to income tax). Deferrals are withheld from income. My preference is to have the section 107 “minister of the gospel” elect a fixed dollar deferral amount. And because the eventual retirement payment from the plan can also be counted as housing allowance (up to the limits allowed) and thus not subject to income tax, perhaps they be especially careful about electing Roth, as that could result in paying unnecessary income taxes.

That’s correct.

Regardless, the plan document likely needs to add some interim good-faith language by the end of 2026 to comply with the law in written form. Thus, the written plan would comply with the possibility that an employee could have have deferred a catchup and their prior W-2 Box 3 FICA wages exceeded the limit that would require such catchup be treated as Roth.

My understanding is that it is cumulative, that the preservation of capital requirement applies upon distribution unless the terms of the plan dictate otherwise, such as a zero percent annual floor. Using actual ROR can cause high 401(a)(26) minimums when there are low or negative investment returns and can cause low 415 lump sum payout limits when there are high investment returns, so be careful out there!

The IRS just said it will be $11,250 for the super de duper catchup.

Robert Richter just stated he believed the next COLA announcement will indicate the HPI determination for 2026. So if the comp number is $150,000 (up from $145,000), he believes that means in 2026 we look at comp over $150,000 paid in 2025 for determining HPI's in 2026.

If you can explain this from Code section 45E, sure: (iii)Inflation adjustmentIn the case of any taxable year beginning in a calendar year after 2023, the $100,000 amount under clause (i) shall be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2007” for “calendar year 2016” in subparagraph (A)(ii) thereof.  If any amount as adjusted under this clause is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000.

The CPI-U for July, August, September of 2025 are all published with values of 323.048, 323.976, and 324.800 respectively. Based on Tom Poje's spreadsheet, the dollar limits for 2026 will be: NOT Official via any IRS pronouncement yet, of course: Deferral limit: $24,500 (up from $23,500) Catchup: $8,000 (up from $7,500) (Super-Catchup, age 60-63 = $11,250, (unchanged) Compensation Limit: $360,000 (up from $350,000) Annual Addition Limit: $72,000 (up from $70,000) DB Limit: $290,000 (up from $280,000) HCE: $160,000 (unchanged) Key Employee: $235,000 (up from $230,000) the 2026 HPI comp number should be $150,000 (up from $145,000) It's unclear but my guess is that means in 2027 we look at comp over $150,000 paid in 2026 for determining HPI's in 2027. The official taxable wage base for 2026, announced by SSA, is $184,500 (up from $176,100).