Mid-Year Deferral Change By Employees

[Guest ralar]

Does anyone have an IRS cite (Code or Reg.)which specifically says that employees may change their deferral election mid-year, so long as the total amount of their annual deferrals does not exceed $10,000 or the amount specified in the plan document (i.e., 15% of compensation).

I know that such changes are allowed (and our prototype plan allows such changes), but I've got a client that wants to see it in writing from the IRS!

[Guest Paul McDonald]

Wouldn't it be wonderful if the tax code were written to explain exactly what you can and cannot do in an understandable fashion? The Code isn't written that way. You may need to teach your client how to navigate around the tax code. You can do this per section xxx but there is a limit under section yyy as defined by section zzz, etc. Your plan document should be the source of what can and cannot be done assuming you have an approved plan document. Even there you are dealing with a legal document that probably sends you on the same journey from article to article, from definition to definition, and in no event greater than ...

Maybe I missed it in my readings but I'm not aware of where you can find such a statement from the IRS. So it is written....so it be done!

[MWeddell]

This may not be as clearly written as you'd like, but look at Treas. Reg. 1.401(k)-1(a)(3)(ii) & (iii). You could probably find a clearer statement that one can change contribution percentage elections at any time by looking at sample plan document language in the IRS's Lists of Required Modifications.

[Guest]

There's nothing in the code that says that. The idea is that if you didn't have a qualified plan, and were allowed to "walk away from income", you would normally be taxed on this. The 401(k) rules provide that this income is not taxable under section 61.