Fiscal Year Deferral Limit vs calender year limit

[Cathy from Chicago]

9/1/10 employee eligible to join 401(k)

Plan Year 9/1 - 8/31

Defers $16,500 by 12/31/10

Can she continue her salary deferrals 1/1/11 for 2011 W-2 Tax Year or does Plan Year prevent additional deferrals until 9/1/11?

Never been asked this before so I appreciate help from anyone who knows answer. Thank you.

[Bill Presson]

9/1/10 employee eligible to join 401(k)

Plan Year 9/1 - 8/31

Defers $16,500 by 12/31/10

Can she continue her salary deferrals 1/1/11 for 2011 W-2 Tax Year or does Plan Year prevent additional deferrals until 9/1/11?

Never been asked this before so I appreciate help from anyone who knows answer. Thank you.

Cathy, the deferral limit is a calendar year limit, so the employee is allowed to continue her deferrals. Just make sure the employer's payroll has the limit set in their system on a calendar year basis.

[Cathy from Chicago]

Thanks, Bill, for your quick response. Appreciate it.

Cathy

9/1/10 employee eligible to join 401(k)

Plan Year 9/1 - 8/31

Defers $16,500 by 12/31/10

Can she continue her salary deferrals 1/1/11 for 2011 W-2 Tax Year or does Plan Year prevent additional deferrals until 9/1/11?

Never been asked this before so I appreciate help from anyone who knows answer. Thank you.

Cathy, the deferral limit is a calendar year limit, so the employee is allowed to continue her deferrals. Just make sure the employer's payroll has the limit set in their system on a calendar year basis.

[rcline46]

Also watch for plan limts like a limit of 11% of pay which WOULD limit the plan year deferral.

[Tom Poje]

the easiest way to remember - the IRS looks at W-2s, (and supposedly are able to sum up the totals for any given calendar year when you file - thats the only way they would know if someone went over the limit)

so if the person worked for another company, they may hit the limit for a given calendar year without you even knowing it. the plan itself has no problem in such situation because the plan didn't accept anything over the limit.