annual addition limits

[pmacduff]

I know I have seen this question before & probably even asked it myself!

Background: plain 401(k) profit sharing plan

the over age 50 owner made $22,669.18 in 401(k) contributions

the ADP test passes.

there is no match in the plan

computing the profit share contribution to maximize the owner using a cross tested formula.

The 2014 individual limit is $52,000. with $5,500 401(k) catch up, $57,500.

Since this owner only made $5,169.18 in catch up contributions is his total allocation amount limited to $57,169.18 or can he still get to $57,500?

I know it's not much in this instance but I want to do it right and get the client as much as possible.

thanks in advance!

[John Feldt ERPA CPC QPA]

As long as the participant made an elective deferral equal to at least the catch-up ($5,500 for 2014), then yes, they can be provided the entire $57,500.

Meaning, it is not just the 402(g) limit or ADP test failure that creates a "catch-up" deferral.

If the plan limited regular deferrals for HCEs to 5% of compensation, they could still defer 5% of pay plus $5,500 (but they can't defer more than their wages, of course).

In your case, deferrals get classified as catch-ups due to the 415 limitation. If the combined ER and EE allocations are enough to push the total allocation over the $52,000 limit for 2014, then deferrrals are classified as "catch-up" deferrals as needed up to the $5,500 limit.

Of course, as you noted, all other testing still has to pass: 410(b), 401(a)(4), etc.

I have not yet seen a document that would not allow this, but double check your plan language just in case. For example, it should say something like this:

Catch-Up Deferral. A catch-up deferral is an elective deferral by a catch-up eligible participant and which is greater than: (1) a plan limit on elective deferrals; (2) the annual additions limit under section 415(d); (3) the elective deferral limit under section 402(g) or (4) the ADP limit under plan section X.X.

[Lou S.]

We even had an IRS audit of small plan a few years back where the IRS said the owners were over 415 limit because they got PS of 415© limit plus 401(k) equal to catchup. After politely explaining the IRS regs on catch-ups to the IRS auditor they agreed it was OK and no 415 violation. Hopefully the auditors have a better handle on that particular issue these days if it comes up again.

[pmacduff]

Thank you John and Lou! I was pretty sure that was the case but as time goes on and esp. this time of year my brain can muddle thoughts.

(as a side note the Plan is on a Corbel VS document)

[Kevin C]

It also wouldn't hurt to check the deduction limit. It's usually high enough that it doesn't affect things, but every once in a while, it applies before you reach 415.

[Lou S.]

Thank you John and Lou! I was pretty sure that was the case but as time goes on and esp. this time of year my brain can muddle thoughts.

(as a side note the Plan is on a Corbel VS document)

Not a problem, we also use the Corbel Doc and it is OK in both prototype and VS.