415 limit

[PFranckowiak]

Am I missing anything here.

1 person 401(k) Plan

Owner is taking only 12500 in compensation (Assume net of FICA)

He is deferring 12,500.

Can he contribute 25 % of pay (12,500) or 3125?

If he does he exceed the 415 limit as 100% of pay is 12,500.

But then can he reclassify 100% of the PS contribution as Catch up and then end up with over 100% of pay as EE plus PS?

Not used to working with such small pay amounts.

Thanks

Pat

[John Feldt ERPA CPC QPA]

You mean, can the employer contribute 25% of pay?

You are correct that the 415 limit in play here is the 100% of pay limit. The wages, for 415 limit purposes, is something above $12,500 (since 415 does not net out FICA). Suppose his 415 wages are actually $13,110. If that's the case, the employer could contribute $610 and he's reached the 415 limit of $13,110 ($12,500 deferral plus $610 ER contrib).

Then as you suggest, if he's catch-up eligible, the employer can contribute even more. The 415 limit does not include the catch-up deferrals. But, if you try making a full $5,500 into a catch-up with a $7,000 regular deferral and $6,110 an employer contribution, then you have to look out for the 404 deduction limit.

25% of overall eligible wages in the plan will limit the employer's deduction.

With just one employee in the plan who makes $13,110, the employer contribution could be $3,277.50 (25% of $13,110) and the deferral of $12,500 is broken down as $9,222.50 regular deferral and $3,277.50 as catch-up, for a total allocation of $15,777.50.

[PFranckowiak]

Thanks - that is what I thought. Just wanted to make sure as I don't deal a lot with such small pay.

Pat

[12AX7]

Would not the regular deferral be $9,832.50? This amount, plus the PS contribution of $3,277.50 would equal $13,110, which is assumed to be 415 Comp? Not that it really matters that much in the end, if I'm looking at this correctly.

[John Feldt ERPA CPC QPA]

Yes.