401k Catchup IRS limits

[Linda Adams]

Is there a requirement for 401k catchup annual limit amounts ( $6000 for 2017 tax year)  to be separately identified from an employees regular 401k annual limit amt of $18,000 for 2017 tax year for payroll deduction purposes? The IRS makes a statement that the $18,000 limit has to be reached before 401k catchup contributions begin; however, does that imply that the catchup amounts have to be reported separately to third party 401k administrators or the IRS?  I don't see any requirements for W2 purposes in breaking out the catchup amounts for 2017 tax year. I am not sure if the Form 5500 requires catchup contributions separated?

Any advice here would be appreciated as to whether catchup has to be separated for reporting purposes.

 

Thank you,

Linda A.

[K2retire]

Neither W-2 nor 5500 reporting requires a distinction between regular deferrals and catch up deferrals. Some (but not all) record keepers do. However, reaching the $18,000 limit is not the only way that a contribution can be classified as a catch up contribution. This makes me wonder what record keepers who require that distinction do when contributions are reclassified as catch up due to testing results.

[ETA Consulting LLC]

Separately identified?  No.  It's merely a higher limit for those who are 50 or older during the year.  The amounts contributed are still elective deferrals.

Good Luck!

[Linda Adams]

Thank you for the responses. I greatly appreciate it. I guess I should have also asked if the catchup amounts need to be separately identified for 401k plan testing purposes? I didn't think of that. I am not a benefits expert...my background is payroll tax.

Thank you,

Linda A.

[ETA Consulting LLC]

Of course.  Catchups aren't included in the 415 limit nor ADP analysis.  

Good Luck!

[david rigby]

Don't forget, while catch-ups aren't included in this year's analysis, next year they are part of the account balances, so they are included in subsequent TH analysis.

[Linda Adams]

Follow up to David Rigby.....Thank you for your response. In terms of the Catchup being included in the subsequent TH analysis....does this subsequent analysis require the Catchup balance amounts be separated or can it just be a lump sum combined balance for 401k and catchup? We are thinking of not separating EE contributions for our payroll software system and that is why I am asking such detailed questions. We don't want to not separate the EE catchup contributions and then find out we needed them segregated:)

Thanks again to everyone who responded so quickly. This is a great website and I appreciate your feedback.

Linda A.

[david rigby]

From the EOB:

"A plan has a plan year ending December 31.  For the 2012 plan year, the determination date is 12/31/2011.  To determine whether the plan is top-heavy, the account balances calculated as of the determination date include all catch-up contributions made for the 2011 plan year and for prior plan years.  Since the top-heavy determination date is being made for the 2012 plan year, catch-up contributions made for the 2011 plan year are part of the catch-up contributions made for prior plan years, and so are included in the top-heavy ratio."

[Linda Adams]

Thank you David for your response. It is very helpful. I am learning about the 401k tests and how catchup is related. If I understand you correctly....the catchup amounts are required for the top-heavy ratio testing. So does it mean that some testing does not include the catchup amounts and thus you have to have a separate total of the catchup amount. My concern is not to eliminate catchup contributions from totals....but to determine if catchup contributions are required to be reported separately ....meaning some tests don't include catchup and some do. So for example if a person has 401k contributions of $24K as of 12/31/11....I could assume that $6K is catchup. Do I need to define their EE contirbutions specifically as $18K 401k and $6K 401k catchup ? Or can I just combine all EE contributions and report them as $24K 401k?  That is my main objective....to find out if from a payroll withholding standpoint if I have to define 401k catchup contributions? 

Please let me know your thoughts. I know it sounds like a simple question....but just trying to get to the root of why we have a separate EE deduction amount for catchup. The IRS says that you can't make catchup contributions until you reach your $18K 401k contributions. I cant figure out why they say that? I don't see anywhere that catchup is required to be separated from a reporting standpoint. Based on your response...the only reason I can see is for the 401k testing?

 

Thank you again for your feedback...looking forward to your response.

Linda A.

 

[K2retire]

Current year catch up contributions are not included in the ADP test or the 415 test. Whoever is doing the testing should know that and handle it appropriately whether or not the catch up contributions are segregated when deposited. 

[Mike Preston]

We appear to be in a kind of loop.  If you study the  answers given you will see that everybody is in agreement that there is absolutely no need for the recordkeeping system to separately account for historical catch-ups versus non-catch-ups.  However, when testing the plan for non-discrimination (such as the ADP test) the test will consider only non-catch-ups of the year in question.   Think of it as a transient need.  When doing current year testing the testing system will need to differentiate.  But once through with testing for the year, there is no need to breakdown account balances.   None.

[K2retire]

Just now, Mike Preston said:

We appear to be in a kind of loop.  If you study the  answers given you will see that everybody is in agreement that there is absolutely no need for the recordkeeping system to separately account for historical catch-ups versus non-catch-ups.  However, when testing the plan for non-discrimination (such as the ADP test) the test will consider only non-catch-ups of the year in question.   Think of it as a transient need.  When doing current year testing the testing system will need to differentiate.  But once through with testing for the year, there is no need to breakdown account balances.   None.

Testing software is generally designed to do this automatically. In fact, if the test fails, it will suggest reclassifying some of the deferrals at catch up, if the full catch up amount hasn't already been used.

[Linda Adams]

Perfect, thank you all for your quick response. That helps clarify for me. I appreciate your patience. I read thru the responses earlier...but it just wasn't clicking for me:) This lets me know that catchup is required to be separated for the current year testing only.

Enjoy the rest of your week...you have been very helpful.

Much appreciated,

Linda A.