Current Thinking

When Does a 401(k) Deferral Become a Catch-Up Contribution?

A recent call with an advisor involved a question on 401(k) catch-up contributions. The advisor asked: When does a 401(k) deferral become a catch-up contribution?”

An employee salary deferral becomes a catch-up contribution when it exceeds the lowest of the following three limits (See Treasury Regulation § 1.414(v)-1 ):

  • A statutory or legal limit (as explained below),
  • A plan-imposed limit stated in the plan document, or
  • The plan’s actual deferral percentage (ADP) limit on salary deferrals.

Salary deferrals above the lowest of these three limits will be considered catch-up contributions up to the annual catch-up maximum amount for a 401(k) plan (i.e., $7,500 for 2023).

Examples of a statutory or legal limit include the IRC § 402(g) limit (i.e., $22,500 for 2023) or the IRC § 415(c) annual additions limit (i.e., 100 percent of a participant’s compensation up to $66,000 for 2023). An example of a plan-imposed limit would be if the plan document were to specify that employee salary deferrals are limited to 10 percent of a participant’s annual compensation. Finally, a plan’s ADP limit on employee salary deferrals is determined by comparing the salary deferrals of the highly compensated employees (HCEs) to those of the non-highly compensated employees (NHCEs) and limiting deferrals for HCEs to a level that allows the plan to satisfy the ADP nondiscrimination test.

Example: Rowan is a 55-year-old HCE who participates in a 401(k) plan he established for his firm. His compensation for the year is $100,000. The maximum IRC § 402(g) limit for 2023 is $22,500. The terms of the 401(k) plan document limit employee salary deferrals to 10% of compensation or, in Rowan’s case, $10,000. The plan administrator determines the salary deferral ADP limit for the year is $8,000.  The lesser of $22,500, $10,000 or $8,000 is $8,000. Therefore, any salary deferral Rowan would make above $8,000 (up to a maximum catch-up limit of $7,500 for 2023) would be considered a catch-up contribution.


There may be more to catch-up contributions than the average plan sponsor or advisor realizes. An employee salary deferral becomes a catch-up contribution when it exceeds the lowest of a legal limit, a plan-imposed limit or the plan’s ADP limit.