401(k) Catch-Up Contributions: Why Payroll Codes Them Wrong

A payroll administrator at a dealership group hit submit and the run wouldn’t close. The system blocked her until she set up a catch-up contribution code for an employee who had crossed the standard deferral limit. She created it. The run went through.

Two things then went wrong that nobody noticed for weeks. Creating the new code switched off the employee’s traditional deferral. And the money withheld under the catch-up code never appeared on the file sent to the recordkeeper, so it sat on the company’s books instead of going into the plan.

Catch-up contributions are one of the most reliably miscoded items in payroll. The rules changed, the limits stack in a way that isn’t obvious, and the failure mode is silent. You find out during the plan audit.

Last updated: August 2026

Three limits, and payroll has to know which one applies

SECURE 2.0 added a tier that didn’t exist before, which is where a lot of the confusion starts.

• Under 50. The standard elective deferral limit, and nothing else.
• Age 50 and over. The standard limit plus the regular catch-up amount.
• Ages 60 through 63. A higher catch-up amount, sometimes called the super catch-up, which reverts back to the regular catch-up at 64.

That third tier is the one that surprises people. It applies to a four-year window based on the participant’s age at the end of the plan year, and then it goes away again. An employee’s maximum can go up at 60 and back down at 64 without anything else about their election changing.

Dollar figures get adjusted for inflation, so pull the current year’s amounts from the IRS cost-of-living adjustment page rather than trusting a number in a spreadsheet from two years ago. The IRS catch-up contribution guidance covers the eligibility mechanics.

The coding error that costs you twice

Here’s the one worth checking this week.

An employee elects 16% as a regular deferral and 1% as catch-up. The feed from the recordkeeper into payroll collapses that into a single 17% regular deferral. Everything looks fine. The employee’s total withholding is correct, the money reaches the plan, and no report flags anything.

The problem is the match. Most plans don’t match catch-up contributions. If those dollars are sitting in the regular deferral bucket, the employer match calculates against them, and the company contributes money it wasn’t obligated to contribute. Do that across enough participants and enough years and it becomes a correction.

An HR director at an industrial services company found exactly this during her plan audit. The auditors sampled the owner, whose election had been 16% plus 1% catch-up, and payroll showed a flat 17% regular deferral. He’d turned 50 five years earlier. Nobody had caught it in any prior audit because nobody had sampled him before.

Her point about it was the right one. He wasn’t especially worried, because at his contribution level the match was capped out anyway. She was worried, because if the feed does that for one person it does it for everyone, including the employees where the match genuinely would be affected.

What the plan audit finds

Catch-up coding rarely shows up alone. It travels with a cluster of integration defects that share a root cause, which is that nobody reconciles what payroll withheld against what the recordkeeper received.

The same audit at that industrial services company surfaced two more. Rehire eligibility wasn’t feeding, so returning employees who should have resumed deferrals immediately weren’t enrolled until someone checked their dates by hand. And a loan refinance had turned off the original loan without ever creating the replacement. Six months of missed payments later, the loan was deemed a distribution and the employee received a 1099-R for the balance.

Nobody told her the payments had stopped. She found out the day before she described it, going through audit findings.

That’s the shape of the risk. Not one dramatic failure. A handful of quiet ones that only become visible when a third party looks.

Who is supposed to notice the birthday?

This is the question most plan sponsors can’t answer, and it’s the practical heart of the problem.

When an employee turns 50, or hits the standard deferral limit mid-year, or enters the 60 to 63 window, something has to change in payroll. Who initiates it? The recordkeeper usually doesn’t push a payroll code. The employee usually doesn’t know the limit exists. Payroll often only finds out when a run gets blocked.

The dealership group in the opening example had nine rooftops. Their workaround was going to be running an age-and-year-to-date report before every payroll and adding or stopping codes by hand. For nine locations on multiple pay cycles, that’s a standing manual task with a real chance of being skipped in a busy week.

Ask your provider a direct question: does the system identify participants who become catch-up eligible, and does it do it before the payroll that needs it?

The Roth catch-up requirement for higher earners

SECURE 2.0 also requires that catch-up contributions be made on a Roth basis for higher earners. This one got delayed once, which is why a lot of plan sponsors still have it filed under “deal with it later.” Later has arrived. Per IRS guidance, the requirement applies beginning in 2026: if a participant’s prior-year wages from the plan sponsor exceeded $150,000, their catch-up contributions have to be Roth. That threshold is indexed, so it will move. Check it each year rather than hardcoding it.

What matters operationally is that it splits one population into two. Some catch-up contributions are pre-tax and some are Roth, determined by prior-year wages from your organization specifically. Your plan document has to allow Roth. Payroll needs a separate code. And the determination has to be made annually against a number your system may not be tracking for that purpose.

If your plan doesn’t currently offer Roth deferrals, that’s a conversation to have with your advisor well before it becomes urgent.

A pre-payroll checklist worth running

Most of this is a one-time audit plus a recurring habit.

• Pull every participant age 50 and over. Confirm each one’s election is split correctly between regular and catch-up codes.
• Verify your match formula excludes catch-up dollars if the plan document says it should.
• Identify anyone turning 50, 60, or 64 during the plan year, and note when their limit changes.
• Reconcile one full cycle: what payroll withheld against what the recordkeeper posted, line by line.
• Check every active loan. Confirm the deduction exists in payroll and the balance is decreasing.
• Review rehires from the past twelve months for eligibility that should have restarted.
• Confirm whether your plan permits Roth deferrals, and whether a Roth catch-up code exists.

Closing the loop between payroll and the plan

Every failure above comes from the same gap. Deferral elections live with the recordkeeper, withholding happens in payroll, and the reconciliation between them is either manual or nobody’s job.

Netchex supports 360-degree 401(k) payroll integration with major recordkeepers, so deferral changes, catch-up elections, and loan setups flow both directions rather than being keyed twice. Eligibility rules including age-based catch-up tiers are configured once and applied at the payroll level, which removes the report-before-every-run workaround.

Because payroll and benefits sit on one record, the reconciliation your auditor asks for is a report you can run yourself. That doesn’t remove your fiduciary responsibility. It does mean you find the coding error in March instead of hearing about it from an auditor in September.

Frequently Asked Questions

This guide reflects publicly available product information and independent reviewer data (G2, Capterra, Trustpilot, Yelp, Better Business Bureau, Reddit, Software Advice, GetApp) as of 2026. Feature availability and pricing may vary by plan. Contact each provider for current details.

Disclaimer: Any product roadmap or future plans provided herein are for informational purposes only. They do not represent a commitment to deliver any material, code, feature, or functionality. Plans may change without notification. The development, release and timing of any features or functionality described remain at the sole discretion of Netchex, its affiliates, and partners. Netchex does not give legal, tax, or accounting advice. You are responsible for ensuring your use of Netchex product meets your individual business and compliance requirements.

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