Help Employees Plan Year-End 401(k) Deferrals

As year-end approaches, help your employees plan for their final 2025 401(k) deferrals. Deferral planning helps participants to avoid contributing more than the 2025 IRS §402(g) dollar limit. Monitoring the limit helps avoid excess deferral refunds. To guide you, NRECA has resources (with examples) on the 401(k) Reconciliation Tasks page of the BA Guide.

Pay special attention to employees who retire or terminate at the end of the year. These individuals often elect to make large deferrals from their final paycheck, especially when it includes a bonus, overtime, vacation, or PTO payout.

Typically, compensation paid in 2026 is reported to the IRS as 2026 income and 401(k) contributions count towards the 2026 limit. However, IRS rules provide an exception for 401(k) contributions made in 2026 from the paycheck of an employee who terminated in 2025. These are called trailing contributions. They count toward the 2025 contribution limit and must be reported on your annual compliance questionnaire.

When a trailing contribution occurs, an over-deferral for 2025 could result, requiring an excess deferral refund for the participant. Depending on your plan’s nondiscrimination testing results, highly compensated employees may also be subject to a lower annual deferral limit. For these reasons, we recommend that you plan for large deferrals while processing an employee’s 2025 termination paperwork.

If you have questions about 401(k) deferral limits, Roth catch-up contributions, planning deferrals for terminating employees, or compliance annual reporting, contact the benefits compliance team at 866.673.2299, option 7 or pension.compliance@nreca.coop.