Behind on Retirement Contributions? The Payroll Math That Closes the Gap by December 31
Every January, payroll runs on the deferral percentage you set months earlier. By the time September turns into October, that percentage may no longer be the number that gets you to your annual contribution limit by December 31.
“Max out your 401(k)” is useful advice, but it is incomplete. Reaching your maximum often requires revisiting your payroll election during the year. For participants turning 60 through 63 in 2026, there is also a higher catch-up limit to factor into that calculation—assuming their employer plan permits catch-up contributions and has implemented the enhanced limit.
The 2026 Deferral Limits
For 2026, the basic employee elective-deferral limit for a 401(k) plan is $24,500, or 100% of compensation if lower. If your plan permits catch-up contributions and you are age 50 or older by the end of 2026, the standard catch-up amount is $8,000. That brings the maximum employee elective deferral to $32,500 for most eligible participants age 50 and older.
A higher catch-up amount applies to eligible participants who turn 60, 61, 62, or 63 during 2026. The enhanced catch-up is $11,250, rather than the standard $8,000 catch-up. It is not added on top of the standard catch-up. For an eligible participant in that age range, the maximum 2026 employee elective deferral, including the enhanced catch-up, is:
$24,500+$11,250=$35,750
If you turn 64 during 2026, the enhanced age-60-to-63 catch-up no longer applies for that year. Instead, the standard $8,000 catch-up applies, assuming the plan allows it. The relevant age test is generally whether you attain the applicable age at any point during the calendar year.
The enhanced catch-up creates a $3,250 difference between the standard and enhanced catch-up amounts. Someone eligible for the higher limit who continues using a payroll election designed around the $32,500 maximum may have unused deferral room.
Important: The 2026 Roth Catch-Up Rule
For 2026, catch-up contributions generally must be made as designated Roth contributions if the participant had more than $150,000 of FICA wages in 2025 from the employer sponsoring the plan. This threshold is based on prior-year wages from that employer, not household income, adjusted gross income, or total compensation from other sources.
For affected participants, the catch-up portion of the contribution does not reduce current taxable income. The regular elective-deferral amount may still be contributed on a pre-tax or Roth basis, depending on plan terms and the participant’s election. Confirm how your employer’s plan and payroll system administer the Roth catch-up requirement before changing your deferral election.
The Payroll Math
Consider a 61-year-old surgeon who is paid biweekly, with 26 scheduled pay periods during the year. In January, she elected to defer $900 per paycheck and has not revisited that election.
Assume that approximately 20 paychecks have been processed by early October:
20×$900=$18,000
If that election remains unchanged for all 26 pay periods, her projected annual deferrals would be:
26×$900=$23,400
That would leave her below both the standard age-50-and-over maximum of $32,500 and the enhanced age-60-to-63 maximum of $35,750.
If six paychecks remain and she is eligible to defer the full $35,750, her remaining deferral amount would be:
$35,750−$18,000=$17,750
Spread evenly over six remaining paychecks, the revised election would be approximately:
$17,750÷6=$2,958.33
In practice, she may elect $2,959 per paycheck if the plan and payroll system permit that amount, which would avoid falling slightly short because of rounding.
For someone in the age-50-to-59 or age-64-and-older range, using the same facts and the standard $32,500 maximum:
$32,500−$18,000=$14,500
$14,500÷6=$2,416.67
That participant would need to defer approximately $2,417 per remaining paycheck to reach the standard maximum.
These examples are illustrations only. Actual results depend on the participant’s compensation, pay frequency, remaining payroll dates, current-year deferrals, plan terms, election limits, payroll processing rules, and available compensation. A participant cannot defer more than permitted by the plan or more than is available from eligible compensation.
Do Not Wait Until November
A payroll election change may not take effect immediately. Processing timing varies by employer, payroll provider, and plan procedures. A change submitted in early October may apply to more remaining payroll periods than one submitted later in the year.
As the number of remaining paychecks declines, the per-paycheck contribution needed to reach the same annual deferral target rises quickly. For example, the $17,750 remaining amount in the illustration would require:
About $2,958 per paycheck with six payroll periods remaining
About $4,438 per paycheck with four payroll periods remaining
About $8,875 per paycheck with two payroll periods remaining
Whether those amounts are feasible depends on compensation, tax withholding, cash-flow needs, payroll timing, the plan’s election procedures, and any percentage-of-pay or administrative limits that apply.
Review your year-to-date deferrals, determine the maximum available to you under your plan, and ask payroll or the plan administrator when a revised election would become effective. Do not assume a submitted election will apply to the next paycheck.
The Cash Balance Plan Opportunity
For physicians and other business owners who are already maximizing available 401(k) deferrals, a cash balance plan may create meaningful additional retirement-plan contribution capacity. However, the amount is not a standardized age-based allowance and should not be estimated from a general online range.
Cash balance plan funding is determined by an enrolled actuary based on the plan’s design, participant census, compensation, age, prior funding, interest-crediting provisions, nondiscrimination requirements, and applicable tax-law limits. A cash balance plan can be especially valuable for an older owner-employee, but the permitted and recommended funding amount must be confirmed for the specific plan and year.
The annual defined-benefit limit under Internal Revenue Code §415 is a benefit limit, not a direct contribution limit. It should not be confused with the deductible amount that a business may contribute to a cash balance plan for a particular year.
Unlike a payroll deferral election, cash balance funding requires advance coordination. Plan-document provisions, actuarial calculations, minimum-funding requirements where applicable, employer tax-return timing, and contribution deadlines can all affect available options. If you sponsor or are considering a cash balance plan, discuss year-end funding goals with your enrolled actuary, CPA, and ERISA counsel well before December.
Closing the Gap
The year-end retirement-plan review is largely an exercise in arithmetic and timing:
Confirm your year-to-date elective deferrals.
Confirm whether your plan permits catch-up contributions and the enhanced age-60-to-63 catch-up.
Determine whether the 2026 Roth catch-up rule applies based on your 2025 FICA wages from the plan sponsor.
Count the payroll periods remaining after a revised election could realistically take effect.
Calculate the per-paycheck amount required to reach your intended limit.
Confirm the election, processing date, and any plan limits with payroll or the plan administrator.
If applicable, contact your actuary and tax adviser about cash balance plan funding before year-end.
A payroll election is not a set-it-and-forget-it decision. Reviewing it before the final few pay periods can help identify whether you have remaining deferral room, whether you can use it, and what action must occur before the calendar closes.
Capable Yours,
Jared
DISCLAIMER
This article is for informational and educational purposes only and does not constitute investment, tax, or legal advice. It does not take into account the specific objectives, financial situation, or needs of any particular person. You should consult your own tax, legal, and investment professionals before acting on any information contained herein. Capable Wealth, a New York registered investment adviser, provides advisory services only where properly licensed or exempt from licensing.