Elective Deferrals and Annual Addition Issue

[chris]

IRS personnel have stated that given the recent legislative changes, a participant can defer the maximum limit under 402(g) AND have up to 40,000 or 100% of compensation contributed to a defined contribution plan. I don't see anything in 415© that takes elective deferrals out of the definition of "annual addition". It would seem to me that if a participant deferred 11,000 in 2002 he could only have an additional 29,000 contributed to the plan on his behalf. Am I missing something or did the IRS personnel think (possibly) that the 404 change was across the board??? Thanks for your input.

[Guest Richard Scheer]

You are correct, the elective deferral is included in the 415 limit but is not included in the 404 caluclation. Therefore, the maximum allocation to a participant in 2001 is only $40,000.

If you amend the plan to allow for catchp-up contributions, a 50 year old can receive a maximum allocation of $41,000. The extra $1,000 is not subject to the 415 limits.