Catch-up contribution and 415 limit

[Sully]

Assume a 401(k) plan with a June 30 plan year end. Participant with the following employee 401(k) contribution history:

7/1/01 – 6/30/02 $0 contributions

7/1/02 – 12/3/02 12,000

1/1/03 – 6/30/03 14,000

7/1/02 – 6/30/03 26,000 (total deferrals for the plan year)

What would be the maximum profit sharing contribution for this employee for the 7/1/02 – 6/30/03 plan year?

A) 16,000 (able to use the 2,000 catch-up contribution)

or

B) 15,000 (because he already used 1,000 of his catch up contribution in the 2002 calendar year)

[Brian Gallagher]

I don't have an answer, but what's the limitation year? Does it agree with the plan year?

[Sully]

Yes, the limitation year is the plan year.

[Guest pjb]

Maximum catch-up for 2003 is $2,000

Maximum 415 is $40,000

Non-catchup deferrals for 2002 = $11,000

2003 deferrals = $14,000

Result: $42,000 - $25,000 = $17,000

[Sully]

Based on above post:

Deferrals during plan year = $26,000

Profit Sharing for plan year = $17,000

Total annual additions = $43,000

Is that possible? I thought the maximum catch-up for 2003 was $2,000 and, therefore, the maximum annual additions could only be $42,000.

[E as in ERISA]

As of 12/31/02, $1,000 of the $12,000 will have been re-characterized as catch-ups under 402(g). That uses up the 2002 catch-up dollar amount.

At 1/1/03, you start fresh again on the catch-up dollar amount. As of 6/30/03, $2,000 of the $14,000 will have been re-characterized as catch-ups under 402(g). That uses up the 2003 catch-up dollar amount.

Of the total $26,000 of elective deferrals, only $23,000 is considered when performing the 415 test.

You calculate the profit sharing contribution based on the formula. If the total of that contribution plus the $23,000 exceeds $40,000, then you correct the excess according to the plan terms. (It is possible that part of the $23,000 is returned to the participant and that the profit sharing contribution will be more than $17,000).