ADP Testing & Catch-up $

[Guest MS TPA]

Joe Smith is a 57yr old Key & HCE. Joe defers $10, 500 for the 2010 plan year. The plan uses Current Year testing. In order to lower the HCE's ADP & thus pass testing, can 5,500 of the 10,500 be recharaterize as catch-up before the ADP test is ran?

[Lou S.]

Joe Smith is a 57yr old Key & HCE. Joe defers $10, 500 for the 2010 plan year. The plan uses Current Year testing. In order to lower the HCE's ADP & thus pass testing, can 5,500 of the 10,500 be recharaterize as catch-up before the ADP test is ran?

No.

Unless there is an imposed limit on deferrals that would restict him to $5,000 if he was not catch-up eligible. Otherwise you don't have a catch-up until after you fail the test at which point you recharacterize.

[Tom Poje]

and that 'rule' does become important.

for instance if another HCE defers 10,000 and is not catch up eligible, via the top down method that HCE will have to take a refund as oppossed to treating all $5500 as a catch up for the one HCE.