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403(b) catch up order

Guest dietpepsi

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Guest dietpepsi

At the Cincinnati Bar Association conference, Monika Templeman, from the IRS, had the following in her power point presentation regarding IRS audits of 403(b) plans:

Ordering rule-employee must use limits in a certain order to apply the age 50 catch up.

1st applies to 402(g)

2nd applies to 15 years of service catch up, if applicable

3rd applies to Age 50 Catch-up, if applicable.

I've been staring at this for quite some time (since June) and I'm still not sure what she was trying to say. Anybody might have an idea?



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Guest Yanikoski


The correct order is as you have reported. This matters, because there is a lifetime limit on the 15-years-of-service catchup. If you were eligible for both catchups and could CHOOSE which catchup you used first, therefore, you would naturally choose the Age 50 catchup, because there is no lifetime limit on that one. What the IRS is saying (and this is a reasonable interpretation of the statute, by the way), is that even if you think you are taking the Age 50 catchup, you are in fact taking the 15-years-of-service catchup if you are eligible for it, and this counts against your $15,000 lifetime limit. So you may run out of this limit before you think you do, and perhaps therefore improperly try to take it after it has, in fact, run out, causing a compliance problem.

This interpretation is retroactive to the beginning of the age 50 catchup, and there are probably some people out there who have used some or all of their remaining $15,000 lifetime limit in this way, thinking that they were taking the age 50 catchup.

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