Age 50 Catch-Up Questions after proposed regulations?

[John A]

After reading the age 50 catch-up proposed regulations, what questions have you come up with?

Here's one I have:

Say a participant has $500 returned as excess deferrals [402(g) excess] for 2001. The participant defers $10,600 from 1/1/02 to 11/30/02 in a plan that allows age 50 catch-up. The ADP limit for the plan year 12/1/01 - 11/30/02 turns out to limit HCEs to $10,000.

Under 1.401(k)-1(f)(5)(i), only $100 would need to be distributed to the participant as a corrective distribution.

Does the participant have $600 in catch-up contributions, or $100 in catch-up contributions, as of 11/30/02?

[Guest JimD]

I do not believe the $500 excess deferral is a catch-up since it exceeded the 2001 402g limit. Catch-up rules apply to contributions in taxable years beginning after 12/31/01. I think there might be a $100 catch-up contribution but the timing rule may count them as 2001 deferrals and then I think you refund. It would be simpler if catch-up contributions could not be made until the 2002 plan year (12/1/02 to 11/30/03) but I'm not sure the regulations say that. What do you think?

[rcline46]

Another reason not to have fiscal year 401(k) plans!

Remember - the 402(g) limits are calendar year, and so is the catchup!

So, in your example, we don't know until the december deferral is in. Then we would have - $600 excess (which would be taxble in 2001!) measured against the 1/1 to 12/31 deferrals. If the deferrals are $11,000 then the $600 would be catch up.

Anything else - wait for IRS guidance.

[John A]

Thank you, both, but let me add the following:

The IRS proposed regulations clarify that whether or not a deferral is reclassified as an age 50 catch-up contribution is done at the end of the plan year for ADP limit purposes. So we should not need to wait for December deferrals to tell whether or not the $600 over the 11/30/02 ADP limit is recharacterized as age 50 catch-up. Also, I completely agree that the $500 deferral in 2001 that was returned as 402(B) excess could not be an age 50 catch-up contribution.

The issue to me is whether the whole $600 in 2002 deferrals that exceed the 11/30/02 ADP limit is recharacterized as an age 50 catch-up contribution due to exceeding the ADP limit, as it normally would be. Or if the fact that the $600 to be refunded can be reduced by the 2001 402(B) excess under 1.401(k)-1(f)(5)(i) also means that only $100 is treated as an age 50 catch-up contributon. Again, this determination is independent of whatever is deferred for December, 2002. I believe the answer is $100, but I would like that confirmed.