Mandatory Roth -- Deemed Roth Feature -- Timing Issue

[Interested Party]

I would appreciate any input on helping me think through the deemed Roth catch-up contribution feature with respect to the new mandatory Roth catch-up contribution rules for high earners.

Here is the scenario:

1.      Plan will adopt a deemed Roth catch-up contribution feature.

2.      HPI will be presented with election form no later than 12/1/25, and will be given the opportunity to elect out of the deemed Roth feature.

3.      HPI elects out of deemed Roth feature before first pay date in 2026.

4.      Plan allows deferral election changes at any time.  Employer does not want to limit deferral election changes to only one time per year.

5.      Mid-year 2026, HPI wants to revoke her election opting out of the deemed Roth feature.  In other words, HPI now wants her catch-up contributions be deemed to be Roth catch-up contributions.

 

Can HPI revoke her opt out election mid-year, thus electing to be subject to the deemed Roth catch-up contribution feature?

• If she can revoke her opt out election mid-year, are there different mid-year revocation deadlines depending on whether the catch-up contribution will be triggered as a result of exceeding the 402(g) limit (which will be known mid-year) vis a vis exceeding the ADP limit (which won’t be known until early 2027)?
• If there are no hard rules under the CODA regulations for this type of mid-year revocation, can sponsor take the approach (as a reasonable interpretation of the regulations) that the mid-year revocation is permissible as long as it is not known at the time of revocation whether a specific deferral limit has been exceeded?

I appreciate any thoughts.  Thanks.

[justanotheradmin]

2 hours ago, Interested Party said:

I would appreciate any input on helping me think through the deemed Roth catch-up contribution feature with respect to the new mandatory Roth catch-up contribution rules for high earners.

Here is the scenario:

1.      Plan will adopt a deemed Roth catch-up contribution feature.

2.      HPI will be presented with election form no later than 12/1/25, and will be given the opportunity to elect out of the deemed Roth feature.

3.      HPI elects out of deemed Roth feature before first pay date in 2026.

4.      Plan allows deferral election changes at any time.  Employer does not want to limit deferral election changes to only one time per year.

5.      Mid-year 2026, HPI wants to revoke her election opting out of the deemed Roth feature.  In other words, HPI now wants her catch-up contributions be deemed to be Roth catch-up contributions.

Seems it might work as follows: 
Item3 - electing out - presumably they would complete a deferral election form for the regular 402(g) amount without catch-up ($24,500 or whatever it gets indexed to for 2026), and if the ADP test fails when performed in early 2027 necessitating refunds the amount that would be reclassified as catch-up would instead be distributed as pre-tax deferrals. 
item 5. - the participant would complete a new deferral election form - and if desired included the higher election amount (up to max including catch-up), and also if the ADP test fails and any portion can be reclassified as Roth Catch-up that would occur rather than being distributed. 

[Interested Party]

justanotheradmin:

Thanks for the response.

With respect to your item 5 comment, do I understand you to believe the participant can make a new deferral election (i.e., essentially opting back into the deemed Roth feature) as late as 12/31/26 to be able to reclassify as Roth catch-up due to a failed 2026 ADP test (which we learn about in early 2027)?

[justanotheradmin]

1 hour ago, Interested Party said:

With respect to your item 5 comment, do I understand you to believe the participant can make a new deferral election (i.e., essentially opting back into the deemed Roth feature) as late as 12/31/26 to be able to reclassify as Roth catch-up due to a failed 2026 ADP test (which we learn about in early 2027)?

yes - assuming the plan document allows for it given the late timing (it might say something more reasonable like those types of elections impacting compliance testing are due 30 days before end of year so the plan admin can prepare for year end testing), and the plan administrator is able to accommodate it, why not? 

I'm not aware of anything in the rules that says the election has to be made available until the last moment of the year. But if the plan administrator can accommodate it and the doc allows, sure. 

[Interested Party]

No plan document issues.  It will be a matter of the sponsor's practices.

Again, I appreciate the replay.  Thanks.