402(g) Limits

[Guest todhen]

I have heard contradictory information and was hoping that someone would help me clarify this point. We have a rather young participant in our company 401(k) plan who defers up to his 415 limits $13,000 for 2004. He works a part time job at another firm and is able to contribute to a 401(k) there as well. It is my understanding that he can contribute to both plans up to the 415 limit as long as he does not exceed the 402(g) limits of $40,000 or 25% of his income. What are your thoughts? Any direction would be greatly appreciated.

[Mike Preston]

You are confusing the two terms "402(g) limits" and "415 limits". They are not the same.

Your young participant has a personal 402(g) limit of $13,000 in 2004. If personal contributions exceed $13,000 between the two plans it will likely do him no good and maybe even some serious (tax) harm.

Tell him to keep his personal deferrals to $13,000 or less between the two companies.

There are times when exceptions make sense: like if the companies will match and, once told that they are to refund a portion of the contributions, will not base the match on the reduced amount (most don't).

Maybe others can conjure up additional reasons to intentially violate the 402(g) limit in a given year.

[Appleby]

I agree --- an individual is subject to the 402(g) limit of $13,000 for 2004( $16,000 if at least age 50 by year-end) regardless of the number of plans in which the individual participates.

If the individual is employed by two unrelated employers, the 415 limit is determined separately…which means the individual could receive $41,000 in each plan; i.e. $82,000 for both plans...compensation allowing.

[david rigby]

If the employee thinks he will get away with it, the IRS will know he has exceeded the 402(g) limit because deferrals are reported on the W-2 of each employer.