allocating deferrals to catch-up to make room for PS

[M Norton]

safe harbor 401(k) plan for medical practice has 3% SH NEC only to NHCEs.

During 2018, physicians over age 50 deferred $24K rather than $24,500 due to clerical error by payroll person.  Can they designate $6,000 as catch-up, leaving $18,000 to count toward their maximum annual addition of $55,000?  Or do they have to count the first $18,500 as regular deferrals before counting any as catch-up?  Trying to make room for increased profit sharing.

Thanks!

[Tom Poje]

my friend Jackie Gleason said to pass on this info to Norton:

 

the following example is from the IRS website. I think it is safe to assume deferrals were made during the year and profit sharing was made after the end of the year.

basically, 1. sum everything up a person received.

2. ooops, over the 415 limit

3. treat overage as a catch up

 

https://www.irs.gov/retirement-plans/401k-plan-catch-up-contribution-eligibility

Example - IRC Section 415(c) limit. Susan is a participant in a 401(k) plan that permits catch-up contributions. She is age 54 and is a catch-up eligible participant. Elective deferrals to the plan are permitted up to the IRC Section 401(a)(30) limit ($18,500 for 2018). The plan provides for a matching contribution equal to 25% of her elective deferrals. The plan also permits discretionary profit sharing contributions that are allocated pursuant to a predetermined formula set forth in the plan. Susan’s compensation for 2018 is $200,000. She deferred $18,500 to the plan. Her matching contribution is $4,625. She receives a discretionary profit sharing contribution in the amount of $35,000. Susan’s total allocation ($18,500 plus $4,625 plus $35,000) exceeds the dollar limitation on annual additions under IRC Section 415(c) by $3,125 ($58,125 less $55,000 is $3,125). The plan treats $3,125 of Susan’s elective deferrals as catch-up contributions.  

[M Norton]

Outstanding - thanks, Tom!