Catch up Contribution

[Logan401]

Can a participant over 50 do the following?:

total deferrals= $11,993.73

total match= $6993.73

total ps= $30012.54

This brings him to the $49,000 415 limit

Can he then defer $5,500 as a catch up?

[K2retire]

Yes.

[Logan401]

Yes.

Okay, thanks.

I thought he had to reach the 402(g) limit 1st before it was considered a catch up.

[K2retire]

He has to reach a limit -- 402g, 415, plan imposed or ADP failure.

[John Feldt ERPA CPC QPA]

This example assumes compensation is at least $49,000 due to the 415© limit (100% of compensation).

[Logan401]

What if the scenario was the following?:

Compensation: $100k

Participant is age 54

total deferrals= $16,500

total ps= $38,000.00

This brings him to $54,500 annual additions

[John Feldt ERPA CPC QPA]

That's okay $5,500 of the $16,500 is catchup. You have a problem if that is the only participant in the plan though.

If it's the only person in the plan, then the deduction limit of 25% of pay limits the $38,000 to a lower amount like $25,000 depending on whether or not the "compensation" figure is net earned income for a sole proprietor or if it's W-2 wages from a corporation (such as a P.C.).

[Logan401]

Thank you John!

[Logan401]

One more scenario for me to fully grasp this...

Participant over 50

No deduction limit worries

No testing issues

Total deferrals= $17,380.00

Total safe harbor NEC= $6,240.00

Can he receive a $30,880.00 profit sharing allocation?

Or, is he restricted to $30,000.00 because he exceeded the 402(g) limit by $880.00?

Thank you!

[John Feldt ERPA CPC QPA]

$30,880 (using the 2011 limits)

[TPApril]

Really? He already filled $880 of the $5,500 catchup bucket, which leaves only room for $4,620 in excess of $49,000. I would think limit to $30,000.

$30,880 (using the 2011 limits)

[Kevin C]

It's $30,880. You are counting the $880 of 402(g) triggered catch-ups towards the $49,000.

With 2011 limits, he has $16,500 deferrals and $6,240 ($22,740) counting towards the $49,000 415 limit. $49,000 - $22,740 = $26,260. If he gets a PS allocation of $30,880, the allocation is $4,620 ($30,880 - $26,640) above the remaining 415 limit. But, he has $4,620 ($5,500-$880) of his catch-up limit remaining. So, $880 of deferrals are catch-up triggered by 402(g) and $4,620 of his deferrals are catch-up triggered by the 415 limit.

Amounts counting towards 415 are $11,880 ($17,380-$5,500) of deferrals, $6,240 of SH NEC and $30,880 of PS for a total of $49,000.

[K2retire]

An easier way to look at it: the maximum allocation of all money types is $49,000. If that amount has been exceeded AND the participant is over age 50 AND has salary deferrals of at least $5,500, then deferrals can reclassified as catch up bringing the new total up to $54,500. Which bucket fills up first doesn't matter.