Catch Up Deferral Question

[Earl]

2017 year, client makes a lot of money.  He has a DB/DC Plan for his consulting income.  He is over 50.

In day job he defers $17,500.  

How do I determine if he can defer $500 or $6,500? 

Does he have to communicate with benefits department of day job to determine if any of $17,500 was treated as a catch up 401k contribution?

Thank you

[ETA Consulting LLC]

$6500.  No.

Good Luck!

[Earl]

Thanks very much

 

[Kac1214]

I agree with ETA but for safety's sake,m you may want to confirm with the Company that received the $17,500 that the ADP Test passed for the year (or that it was SH). 

[ETA Consulting LLC]

1 hour ago, Kac1214 said:

I agree with ETA but for safety's sake,m you may want to confirm with the Company that received the $17,500 that the ADP Test passed for the year (or that it was SH). 

That would be totally unnecessary. The taxpayer has an individual limit of $24,000 for the year. As long as that is not exceeded, the onus is not on the individual to account for the specifics of the plan for any employer. 

Good Luck! 

[Tom Poje]

without knowing more details, if you were in 2 unrelated plans I suppose the following could happen:

one plan fails ADP test , you are due $5000 refund and it is treated as a catch up.

The other plan (night job) has one nhce. It also fails ADP test and refund is also $5000. treated as a catch up. e.g. the hce deferred but the  NHCEs didn't defer.

now there are problems because that would be 10,000 in catch up, so in that situation there are issues.

[Bird]

Yeah but if a tree falls in the woods and no one is there to hear it, did it make a sound?

[Tom Poje]

yes, it is sometimes referred to as ethics.

and the actual quote is

[ETA Consulting LLC]

4 hours ago, Tom Poje said:

without knowing more details, if you were in 2 unrelated plans I suppose the following could happen:

one plan fails ADP test , you are due $5000 refund and it is treated as a catch up.

The other plan (night job) has one nhce. It also fails ADP test and refund is also $5000. treated as a catch up. e.g. the hce deferred but the  NHCEs didn't defer.

now there are problems because that would be 10,000 in catch up, so in that situation there are issues.

I still don't see it.  Let's simplify the hypothetical:  A taxpayer is an HCE in two unrelated companies.  He defers exactly $12K in each plan.  After each plan completes their respective ADP test, this HCE's $6,000 in excess employee contributions (in each plan) are reclassified as catchup.

I think:  For each plan, the HCE remains within that plan's limit.  Overall, the participant remains at the individual 402(g) limit for a single taxpayer.  

You're saying that because catchup is limited to $6,000, his legal catchup limit is $6,000; and completely ignores that fact that he has a 402(g) limit of $24,000 that isn't exceeded.  I don't agree with that.  I don't believe a plan of one employer can dictate to another plan what is a catchup.  When it comes to the statutory limit ($18,000 plus $6,000), this is the only time the plans (of two totally unrelated employers) should be combined for this determination.

Good Luck!

[Tom Poje]

you are correct, I sit humbled. the notes I looked up were incorrect, probably based on what was first believed when the rules came out. I read further down in my notes and see even I indicate that. my humble apologies all.

[ETA Consulting LLC]

11 hours ago, Tom Poje said:

you are correct, I sit humbled. the notes I looked up were incorrect, probably based on what was first believed when the rules came out. I read further down in my notes and see even I indicate that. my humble apologies all.

None necessary.  Even Lebron James misses a shot once in a while.  You're still a legend in the field

[BG5150]

8 hours ago, ETA Consulting LLC said:

None necessary.  Even Lebron James misses a shot once in a while.  You're still a legend in the field

I'm a legend in my own mind.  Does that count for anything?

[Tom Poje]

the only legend about me (unproven) has it I actually post a worthwhile joke (or song)  once and a while. the rest is smoke and mirrors.

what is your legend?