Catch-up cont only?

[Guest DazedAndConfused]

I have a plan that is top-heavy. The owner, who is over 50, would like to set up a 401(k).

Can we set up a SH 401(k), do the SH match, have the owner just put in catch-up for himself and then be able to do a NC allocation? This way he does not have to worry about if any employees defer or not and he can max himself out. Is this making sense? Can an owner just put in catch-up, no deferrals. Thanks for any insights.

[stephen]

Isn't the point of the safe harbor to allow the owner to maximize deferral contributions? Why would you just put in the catch-up? (It may help if I understood what you mean by "NC allocation".)

[austin3515]

I think he means nonelective contribution.

If you want to max out the owner, you definitely want to use 401(k). You should usee the SH 3%, so you satisfy most of the TH, and if you want to x-test, it will count towards the gateway.

I guess if you wanted the SH match, you could use an integrated allocation, but you might still need to kick in extra for the THM.

There is absolutely no way to max out the owner with no 401(k) and no contributions for the ee's other than a SH match...

[Guest Cheri_Rose]

Not sure what the logic is...but just answering your original question:

Yes the owner can contribute only catch-up, but you would have to draft the plan doc so that owner-employees (or HCEs) can only contribute/defer 0% (otherwise you wouldn't be hitting a limit, and the deferrals wouldn't be considered catch-up).

[Kevin C]

I think "NC Allocation" means new comparability allocation.

If the owner is only going to defer $5,000, there isn't any point in doing a safe harbor match. Without a SH, if no one else defers, his ADP refund would be reclassified as catch-up. If you are thinking about the top heavy exemption for SH match, you will lose that when you allocate the PS contribution. Also, the SH match doesn't count towards the gateway. As previously mentioned, a 3% SH works well with a new comparability PS allocation.

Catch-up is also triggered by the 415 limit, so you don't have to limit HCE deferrals to 0% (plus the catch-up).

[Guest Pensions in Paradise]

Assuming the owner only wants to make catch-up, I would amend the plan as Cheri_Rose recommended. Otherwise if a NHCE defers even one dollar, then a portion of the owner's deferral is treated as a regular 401(k) deferral which would trigger TH minimum. Whereas if you limit the HCE to 0%, the owner's entire $5,000 contribution is automatically treated as catch-up.

[Bob R]

The following is from 1.414(v). The person would not be eligible to make catch-up contributions if the deferral limit is 0%.

(3) Catch-up eligible participant. An employee is a catch-up eligible participant for a taxable year if—

(i) The employee is eligible to make elective deferrals under an applicable employer plan (without regard to section 414(v) or this section); and

[Kevin C]

The original post said the owner wanted to max out, so the top heavy exemption for SH match plans will not apply.

If the intent is to use the SH match to avoid having to make TH minimums, then it makes no sense for the owner to only defer the amount of the catch-up limit.

[stephen]

Which takes ups back to my orignal post on the subject.

Perhaps Dazed will enlighten us regarding the reasoning behind asking the original question.