415 Limit on catch up contributions

[Hoard1]

An employee with over 15 year of service with a qualified organization would like to make the maximun catch up deferral contribution. Is it caculated as:

20,000 * 25% + 4,000 = 9,000 for 415 purposes?

[Michael Devault]

Your calculations are correct for the "Any Year" catch up, assuming that the $20,000 is the employee's "includible compensation."

Please note that the employee doesn't have to have 15 years of service to elect this catch up... it's available anytime. The 15 years of service is applicable to the 402(g) catch up, which allows the regular elective deferral limit ($10,000 in 1999, $10,500 in 2000) to be increased by as much as $3,000 per year.

[Hoard1]

Since these would be 402(g) contributions in excess of 10,000 or 10,500 would not the 15 year limit be applicable?

[Guest mike webb]

In the example that you gave, the particpant's 415 limit was $5,000. Under Special Election B, it was increased to $9,000, assuming that $20,000 was the participant's "includible compensation". Assuming that $9,000 was the least of the particpant's three limits (402(g), 415, 403(B)(2) exclusion allowance), the 15-year catch-up election (which merely increases the 402(g) limit to as much as $13,000--$13,500 in 2000) would be useless in this case, since the participant would be limited by his/her 415 maximum of $9,000, not his/her 402(g) limit. There would not be contributions in excess of $10,000 (or $10,500 in 2000) in the example given, since $9,000 would be the participant's limit.

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Mike W.

[Hoard1]

So, the 415 catch up can be used by anyone and can include deferrals. The 402(g) catch up must be for employees with 15 years of service.

[Guest mike webb]

Correct. The replacement of the general 415 limit with an enhanced limit of 25% of "includible compensation" plus $4,000, under Special Election B (or the "Any Year" limit)is available in any year of service, as long as long as a alternate special election ('A' or 'C') has not previously been utilized by the employee at his/her current employer. By contrast, the 402(g) limit enhancement can only be used when an employee has completed 15 years of service with the current employer. However, the 15-year "catch-up" election can be used in conjunction with any of the special elections ('A', 'B', or 'C').

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Mike W.