By Debbie Carlson

If you are a high-earning employee over age 50 and planning to fund catch-up contributions in your 401(k), take a few minutes to make sure the money is going to the right place.

Starting this year, most high-earning employees need to funnel their catch-up contributions into their workplace retirement plan's after-tax Roth account instead of the traditional pre-tax allocation. This includes both the $8,000 allowed for people over age 50, and the $11,250 allowed for workers ages 60 to 63.

Already, with the year half over, some high earners are close to hitting this year's $24,500 maximum employee contribution ceiling and soon may be seeing those catch-up contributions kick in.

The majority of workplace plans already offer Roth 401(k) accounts, and ideally, once you max out your annual contribution limit in pre-tax funds, any additional contributions will automatically be designated as Roth catch-up contributions, says Rakesh Mahajan, chief revenue officer at Human Interest, a 401(k) recordkeeper. But it may not be so seamless for every plan, as it is up to the employer to get it right.

Given that this is the first year that the Internal Revenue Service mandates that this extra money goes to a Roth, you should double-check it is being allocated to the right account. Otherwise, you may end up with a surprise tax bill come April.

Start with your most recent pay stub or log into your 401(k) or 403(b) and look at contributions by source, which should be labeled pre-tax or Roth, says Michelle Cannan, head of company retirement-plan services at Modern Wealth. If you aren't sure, talk to your employer and ask how catch--up contributions are being treated.

If you have already started to fund your catch-up contributions and notice that they are going into the pre-tax account, your employer needs to fix this to be compliant with IRS rules, she says.

If it is caught early enough, employers can retroactively fix it through payroll filings and correct the allocations before filing W-2 forms in January. If normal payroll corrections aren't enough, employers may have to do an in-plan Roth rollover, says Miklos Ringbauer, principal of MiklosCPA, an accounting and tax strategy firm. Because it wasn't your fault, you shouldn't pay any penalties, but the transaction will be classified as a taxable distribution and you will get a 1099-R.

The new Roth catch-up rules won't apply to all high earners, as they are based on the prior year's W-2 wages from the current employer. If you switched companies and didn't earn more than $150,000 from your current employer last year, you may still be allowed pre-tax catch-up contributions. It can get tricky for workers whose income may fluctuate above or below that $150,000 threshold, as they can fall into or out of needing to put their catch-up contributions in a Roth based on their prior year's earnings, Ringbauer says.

If your employer doesn't offer a Roth option, high earners can't make catch-up contributions. You can ask your employer to amend its plan to add a Roth account, Cannan says, and midyear is a good time to do it, as it takes a little time to update the plans and coordinate with payroll.

If your employer won't budge, Brett Bernstein, co-founder of XML Financial Group, says high-earners' other option is to earmark what they would put in as a catch-up contribution to fund a backdoor Roth by funding a traditional IRA outside of the 401(k) and immediately convert it to a Roth.

Some higher earners won't like being forced to contribute to a Roth, because it means they will be paying more tax than if the money went to a tax-deferred traditional 401(k). But any growth in the Roth account will be tax-free — you won't be sharing your gains with the government when you spend it in the future.

"Some people feel like it's a constraint, but it can actually improve tax diversification and lead to better long-term outcomes with the right planning," Cannan says.

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