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Catch-ups


Guest kdm
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Guest kdm

If a 50 year old person works for two unrelated employers where one employer has a 401(k) and the other employer has a SIMPLE IRA, can the employee take advantage of both catch-ups? As an example, could he defer $7,000 plus $500 into the SIMPLE IRA and $4,000 plus $1,000 into the 401(k)?

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It depends on whether or not SIMPLE deferrals are coordinated with deferrals subject to 402(g) limits (which the 401(k) is under). (I do not know anything about SIMPLE plans.) According to the proposed regulations on catch-ups, separate catch-up limits apply as long as there are separate underlying limits. For example, 457 plans are subject to a separate limit and not coordinated with 402(g). Therefore you can use a full $1,000 catch-up in both a 401(k) and 457.

So, if you can defer amounts under a SIMPLE and not affect the liimitations under the 401(k), the same rule applies to the catch-up. If the regular deferrals are coordinated, then you only can do one coordinated catch-up, too.

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Guest kdm

SIMPLE IRA deferrals are combined with 401(k) and 403(B) deferrals for the 402(g) limit, however my concern is that the catch-up limit is under a different part of the code. I believe it is 414(v). I have read that catch-up contributions are not subject to other contribution limits and will not be taken into account in applying other contribution limits. So that is why I am wondering if a person could use both catch-ups given the oppportunity.

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kdm - yes, you're correct. So the individual could not have a full catchup contribution under each plan. It is a per individual limitation.

mgb - can you clarify something for me, because I'm not all that sure I understand it properly. I interpret the regulations to coordinate the limitation with 457 plans, UNLESS you are in the 3 year period where 457 allows the special catchups under 457(B)(3). And then the special 457(B)(3) catchup applies, and not the new EGTRRA catchup. So I guess what I'm thinking is that if you participate in, say, a 401(k) plan with employer A, and a 457 plan with non-related employer B, then you only have the one catchup. You wouldn't be allowed the 1,000 in each plan. If you think otherwise, can you elaborate as to how you reach that conclusion so I can go back and rethink this? Thanks!

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Look at proposed regulatioin 1.414(v)-1(f). The only time you aggregate catchups and apply one limit is if the underlying limitation is the same for both. 457 is not subject to 401(a)(30) (which refers to 402(g)) like 401(k)s are. Therefore, they are separate underlying limits (you can do 11000 in each) and they both can have separate catchups. On the other hand 403(B) and 401(k) are aggregated for purposes of 401(g), so only one aggregate catchup is allowed between these two types.

"If elective deferrals under more than one applicable employer plan of an employer are aggregated for purposes of applying a statutory limit under paragraph (B)(1)(i) of this section, then the aggregate elective deferrals treated as catch up contributions by reason of exceeding the statutory limit under all such applicable employer plans must not exceed the applicable dollar catchup limit for the taxable year."

The above only references different plans of one employer. A technical correction under JCWAA extended this same logic to plans of multiple employers.

None of this is affected by the last-3 years rule coordination of 457 plans.

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mgb - thanks for the response! Now, please bear with me on this, because here is where my confusion arises. When I look at 1.414(v)-1(g) and (h), these sections are the ones that indicated to me that the 457 and the 401(k) would be aggregated, and that during the 3 year 457(B)(3) period you couldn't have both. If you read these sections as not aggregating the 401(k) and 457 catchups, then what do they mean to you? Thanks in advance - I really appreciate your input.

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