Off Calendar ADP Failure / 402g limit for rest of yea

[Guest JPitcl]

For a 9/30 year end, an HCE has to take a refund to pass ADP. They had put in the 402g limit for the year between 1/1 and 9/30. Can they re-deposit their refund for the next (10/1 - 12/31) quarter? If so, their W-2 would show an amount in excess of the limit, and they would receive a 1099-R in the amount of the excess, correct?

[Tom Poje]

not sure what you are really asking.

once you hit the 402(g) limit for the year, anything above and beyond will be refunded. it doesn't matter if you have already received a refund for a failed test. you can't 'redeposit' a refund - deferrals can only come from money currently available as well.

[Bird]

Excess deferrals are reduced by excess contributions previously distributed (look for a thread in this forum titled "ADP Test Issue" from Oct 2005 - but that references old regs).

I think this is the cite but I have to admit this is giving me a bit of a headache: Reg § 1.402(g)-1(e)(6).

So yes, I think you can exceed the 402(g) limit and the excess doesn't get refunded if it has already been refunded for a failed test.

[Guest JPitcl]

Excess deferrals are reduced by excess contributions previously distributed (look for a thread in this forum titled "ADP Test Issue" from Oct 2005 - but that references old regs).

I think this is the cite but I have to admit this is giving me a bit of a headache: Reg § 1.402(g)-1(e)(6).

So yes, I think you can exceed the 402(g) limit and the excess doesn't get refunded if it has already been refunded for a failed test.

Bird,

Thanks so much. This was my recollection, but I couldn't remeber the cite.

I searched and searched and never found this thread, so I appreciate your help!

[dmwe]

I think there are more questions to ask here. ADP testing might not necessarily have much to do with the 402g test results. 402g should be calendar year test. So at this point all you can look at is 2006 data.

For fiscal year plans any dollars over $15,000 in 2006 are automatically called "catch-up". You should lower your fiscal year deferral total for HCEs by any amount that was classified as "catch-up" in 2006 and run ADP using the net amount. Sometimes this can help significantly.

Once you get to the end of 2007 you can test 402g for 2007 and if 15,500 or 20,500 is exceeded you can refund in 2008 within IRS deadline.

Fiscal year testing is tricky. You should consult Sal Tripodi's manuals for specific examples and a walk-though on how testing should be handled.