Year-End Checklist for Energy Executives: Deferred Comp, RSUs, and the New Roth Catch-Up Rule

Several of the most consequential compensation decisions of the year have hard December deadlines, and some cannot be changed once made.

Why December Matters More for Executives

Most employees can treat year-end as routine. Executives with deferred compensation, restricted stock, and large bonuses face several decisions with fixed deadlines, and a few of them are irrevocable once the deadline passes. The tax rules behind RSUs and deferred compensation are covered in our article on restricted stock and deferred compensation vesting. This article focuses on what to do before December 31.

1. Your Deferred Compensation Election

Under the tax rules that govern nonqualified deferred compensation (Section 409A), an election to defer salary earned next year generally has to be made by December 31 of this year. Many employers close their enrollment window earlier, often in November, so check your plan's actual date.

Once made, the election is generally irrevocable for that year. That includes the timing and form of payout you choose, which usually cannot be changed later except under strict rules.

Questions worth working through first:

• How much to defer. Deferred compensation is generally an unfunded promise from your employer and can be exposed to the company's creditors, unlike a 401(k). The amount you defer is also money you are concentrating with your employer.
• When it pays out. A distribution schedule that starts in the same year as a pension lump sum or a large stock sale can stack income into a high bracket. Spacing payouts across early retirement years may help.
• Whether you need the cash flow. Deferring is only useful if you can comfortably live without that income in the meantime.

2. The RSU Withholding Gap

When RSUs vest, employers typically withhold federal income tax at a flat 22% on supplemental wages up to $1 million in a year, and 37% above that. If your income puts you in the 32% or 35% bracket, that withholding can come up well short, and the difference is due when you file.

Before year-end, it is worth estimating your total 2026 tax and comparing it to what has been withheld. If there is a gap, options generally include increasing withholding on your remaining paychecks or making a fourth-quarter estimated payment, which is due January 15, 2027. Paying enough to meet the IRS safe-harbor thresholds can help avoid an underpayment penalty.

3. Concentrated Company Stock

Years of RSU vesting and plan contributions can leave a large share of your net worth in one company's stock. Year-end is a natural time to review that exposure. Some approaches people consider include selling on a set schedule, offsetting gains with losses elsewhere in the portfolio, and donating appreciated shares to charity (see our article on year-end charitable giving).

If your 401(k) holds appreciated company stock and retirement is approaching, review the Net Unrealized Appreciation rules before rolling anything into an IRA.

4. Your 401(k) and the New Roth Catch-Up Rule

For 2026, the 401(k) employee contribution limit is $24,500. Those age 50 and older can add a catch-up contribution of $8,000, or $11,250 for those ages 60 through 63.

New this year: if your prior-year FICA wages from your employer exceeded $150,000, your catch-up contributions must be made as Roth (after-tax) contributions. That means the catch-up portion no longer reduces your taxable income this year, though qualified Roth withdrawals in retirement are generally tax-free. If you assumed your full contribution was pre-tax, your tax estimate may need updating.

The IRS typically announces next year's limits in the fall. Once it does, confirm your 2027 contribution elections so you do not fall short of, or over-contribute to, the new limits.

5. If You Plan to Retire Next Year

• Confirm when your annual bonus is paid and whether you must be employed on that date to receive it.
• If you have a pension, check how the lump-sum calculation is tied to interest rates and your retirement date.
• Review how your deferred compensation, pension, and stock decisions fit together in your first years of retirement, when your income may be lower and some tax planning opportunities open up.

The Bottom Line

The deadlines above are not difficult, but they are easy to miss in a busy December, and the cost of a missed election can last for years. If you would like help reviewing these decisions alongside your tax picture, our team can help.

Investment advisory services offered through CreativeOne Wealth, LLC, a Registered Investment Adviser. CreativeOne Wealth, LLC and Luca Wealth Management are unaffiliated entities. This material is for informational purposes only and does not constitute investment, tax, or legal advice. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Please consult with a qualified professional before making any financial decisions.