catch up contributions

[Guest lindamichals]

I have a client who cannot take advantage of the the catch up contribution even though she is age 50, wife of the owner because they do not fail testing, neither husband or wife put in $11,000. She is looking for something I can give her that explicitely spells this out and I am having a hard time finding something in layman terms to give her. Any suggestions? Thanks.

[pmacduff]

If the test is passing and she hasn't deferred $11,000, why doesn't she just defer more???

[Guest lindamichals]

deferring the max of $11,000 is not an option for them. She takes a low salary($24,000), husband about $108,000. She says they can't afford it.

[E as in ERISA]

So you basically have someone who can't afford to really use the catchup provisions, but can't understand why her regular contributions are not being characterized as catchups?

[pmacduff]

I didn't mean for her to defer $11,000 - why doesn't she just defer $1000 more as regular deferrals, it will accomplish the same thing?!?!?!?

P.S. If you seach "catch up contributions" on these boards, you will see a lot of different articles and threads (I do it from the main page of Benefits Link). One of these might give you something you can use to help her understand that you have to hit the plan or statutory limits 1st...

[Brian Gallagher]

if they can't afford it, why are they asking about it?

also, what is the plan's limit for deferrals? if it's under 46% she would never reach $11k.

[Guest lindamichals]

Originally posted by Katherine

So you basically have someone who can't afford to really use the  catchup provisions, but can't understand why her regular contributions are not being characterized as catchups?

That is correct, she wants to see it in writing in language she can understand. Am I correct in understanding the catch up provision to mean that even if she were to contribute more and make the test fail, she would still not be eligible to defer a catch up as she is not the person who gets the refund?

[Tom Poje]

bingo! you have it correct, if she defers more and the plan fails, the correction might go to someone else.

she wants it in writing?

ok, get a new copy of the code.

it is section 414

(v)

it used to only go up to section (u), so this was a completely new addition.

Now, if you ever tried to wrestle your way through the regs and code, think how much fun she will have.

[Guest bjschiedel]

Tom,

You seem like a seasoned veteran, so here goes:

When you do ADP refund calculations, do you do the earnings calculation and then recharacterize from the employee source to the Catch-up source after earnings, or do you recharacterize the actual excess amount before earnings? Specifically, I am working on a 5330 and am not certain whether to enter into the form the total excess contributions minus any catch-up recharacterization before the earnings calculation or after. Deducting Catch-up before the earnings Calc. results in a cheaper excise tax for the client.

I would love to talk to you directly aboput this via e-mail:

BJS@Burkegroup.com

Thanks :-)