NQDC: Your Edge in the New 401(k) Catch-Up Landscape

Many of us picture retirement as the time we get to harvest the fruits of our labor and spend time with loved ones doing activities we enjoy. The circumstances to get there are different for everyone, but there are several cornerstones of a prudent retirement plan.  

Deferred compensation plans are the bedrock of retirement planning. These plans allow participants to lower their immediate tax liability by reducing annual income while also allowing investment earnings to compound over time without being diminished by annual taxes. This approach allows individuals to retain a greater share of their earnings while they are in higher income brackets, optimize their tax position, and enhance overall financial efficiency. But sometimes the rules change. A new IRS regulation, part of the SECURE 2.0 Act, will soon reshape how higher earners save in their 401(k). The good news: if your company offers a Nonqualified Deferred Compensation (NQDC) plan, you may have a smart way to stay ahead. 

What’s Changing with 401(k) Catch-Up Contributions? 

If you’re age 50 or older, you can make extra “catch-up” contributions above the regular 401(k) limit. Today, those can be made on a pre-tax basis, reducing taxable income. 

Starting in 2026, if your wages exceed roughly $145,000 (indexed for inflation), any catch-up contributions must be made as Roth contributions. That means paying tax now instead of deferring it until retirement. 

For many executives, that means less tax flexibility and a higher immediate tax bill. 

You should check with your benefits or payroll department to understand how your company will handle Roth catch-up contributions and whether any system updates or new elections will be required for 2026. 

Why This Matters 

High earners already hit the 401(k) maximum quickly. Catch-up contributions provided one of the few ways to defer more on a pre-tax basis. Shifting those contributions to Roth takes away the immediate deduction many professionals rely on during peak earning years. 

If you expect to be in a lower tax bracket in retirement, this change could reduce the overall benefit of your savings strategy. 

How NQDC Plans Can Help 

NQDC plans offer an important alternative. Unlike a 401(k), they’re not bound by strict IRS caps. Participants can elect to defer a portion of their compensation before taxes and choose when they want distributions in the future. 

Here’s what makes NQDC valuable in light of the new rule: 

• Keep the tax-deferral advantage – Contributions are deferred until distribution, preserving pre-tax growth. 
• Go beyond 401(k) limits – Deferrals can extend well past IRS contribution caps. 
• Align timing with goals – Distribution elections can be tailored around retirement or other milestones.

In short, NQDC provides certain flexible options that qualified plans can’t, which are especially important as 401(k) rules tighten. 

Enrollment Season: The Time to Act 

NQDC plans operate under special IRS rules.  Because elections to defer next year’s compensation generally must be made before the year begins, enrollments for NQDC plans typically take place in the fall. That makes enrollment season critical. 

Now is the time for eligible employees to: 

• Review how much of next year’s income to defer 
• Compare the impact of Roth-only 401(k) catch-ups versus NQDC deferrals 
• Align distribution elections with long-term financial goals 

Missing the window could mean losing a year’s worth of tax-deferred savings. 

What If Your Company Doesn’t Offer an NQDC Plan? 

For companies without a nonqualified plan, this is a perfect moment to reconsider. Adding an NQDC program can: 

• Enhance executive benefits in a competitive market 
• Give leadership a tool to manage long-term savings and taxes 
• Provide a clear solution for employees affected by the new 401(k) rule 

At Karr Barth Administrators, we help organizations install, design, and administer these plans — ensuring they’re tailored to both company strategy and participant needs. 

Putting It All Together 

Here’s the bottom line: 

• Starting in 2026, high earners will no longer be able to make pre-tax catch-up contributions to their 401(k). 
• That could mean higher current taxes and less flexibility. 
• NQDC plans remain one of the few ways to continue deferring income and growing savings on a pre-tax basis. 
• With enrollment season underway, now is the time to review your deferral strategy or explore establishing a plan.

How Karr Barth Administrators Can Help 

Karr Barth Administrators partners with companies and participants to: 

• Educate employees about NQDC deferral and distribution options 
• Ensure smooth administration and compliance 
• Support companies in installing new plans 

If you’re considering your 2026 deferrals — or if your company is interested in adding an NQDC plan — we’re here to help. 

Contact Karr Barth Administrators today at (800) 549-1989 or planadmin@kbadmin.com to make sure you’re getting the most from your retirement planning opportunities.