Maximum deferral...

[Guest RONNIE WASEL]

What would be the maximum deferral for a participant in a 401k plan that is under 50 years of age in a plan that has a plan year 12/1/02 - 11/30/03?

Would it be $12,000?

Thanks,

Ronnie

[MGB]

The answer is some number between $12,000 and $23,000.

The 402(g) limit ($11,000 in 2001; $12,000 in 2002) is on a calendar-year basis only. The plan year is irrelevant.

The amount they can defer from 12/1/02 to 12/31/02 is $11,000 minus the amount they deferred between 1/1/02 to 11/30/02. (The answer is something from zero to $11,000.)

They can defer a full $12,000 between 1/1/03 and 11/30/03. However, if they defer the full amount, they will not be able to defer anything in the next plan year between 12/1/03 and 12/31/03.

So, the answer is $12,000 (although this limits their ability in December 2003 to defer) plus whatever they deferred in December 2002. Of course, if this gets very high, they very likely will be failing an ADP test.

(It is much, much simpler to keep all 401(k) plans on a calendar year basis because the limits are calendar year.)

[ccassetty]

The 402(g) deferral limit is a calendar year limit. So, if this is the first plan year, in theory, the participant could put in $11,000 in December of 2002 and an additional $12,000 from January through November of 2003. Of course this is all subject to the 415 and plan limits and discrimination testing, but your question just involved the 402(g) limit.

If this is not the first plan year, the same general rule applies. In December 2002, the participant could put in an amount equal to $11,000 minus whatever deferrals were made January - November 2002 plus the participant could put in the full $12,000 from January - November of 2003.