401(a)(17) Question

[Guest NCLawyer]

Take a scenario where a 401(k) matches 50% of up to the first 6% of base salary 401(K) contribution and also allows a total of 18% annual earnings. If an executive earned say $600,000 could they elect to contibute only $13,500 to their pre-tax account (to comply with 401(a)(17) and then fund the after-tax account with the remainder of $22,500 (which would be matched).

I know that the $22,500 would still be taxed as ordinary income, and that any growth would also be classified as ordinary income when withdrawn (and also potential early withdrawl penalties), but would this be a way to get the full company match? Also would any other limits come into play?

[Jim Chad]

I've got bad news. It won't work that way.

The Plan can only count the $225,000 of comp in calculating the match. You are correct. This is $13,500. So the Match tops out at $6,750 in 2007.

[Guest NCLawyer]

I've got bad news. It won't work that way.

The Plan can only count the $225,000 of comp in calculating the match. You are correct. This is $13,500. So the Match tops out at $6,750 in 2007.

Do you have any authority that would support that? I've seen plans that allow a participant to switch from a pre-tax account to an after-tax account to continue recieving a match once there 402(g) limitation has been met. I don't see why they would be able to continue to recieve a match in an after-tax account while a person in excess of the 401(a)(17) would not be able to.

[Jim Chad]

I'm sorry, I can't find a perfect cite. All I can find is in the ERISA Outline by Sal Tripodi (2006 - page 3.191)

and this is the way it has been discussed at every seminar I ever attended.