Is my math correct for deduction/415(c)?

[Jakyasar]

Good morning all

Owner only 401k plan - OwnerCo.

Owner also works for another company as an employee - EE-Co.

Owner over age 50.

Owner will defer $6,000 in the company - EE-Co he is working as an employee.

Owner will receive $22,000 salary from OwnerCo and will defer $20,000.

So between the 2 deferrals, Owner is not going to exceed $26,000 for 2020.

Of the $20,000 deferral under OwnerCo, the owner will treat $6,500 of the deferral as catch-up which will reduce the base deferral to $13,500.

Owner will also make a $5,500 profit sharing contribution from the OwnerCo. Therefore $13,500+$5,500=$19,000 will not exceed 100% of pay i.e. $22,000.

Agree?

Thank you,

 

[C. B. Zeller]

This wasn't explicitly stated, but assuming OwnerCo is a corporation? Owner receives a W-2 and not self-employment income?

You cannot "treat" deferrals as catch-up by election; you have to exceed a limit.

$20,000 exceeds the 401(a)(30) limit by $500 so we have $19,500 deferrals plus $500 catch-up.

$19,500 deferrals + $5,500 PS = $25,000 which exceeds the 415 limit (100% of compensation) by $3,000 so another $3,000 of deferrals can be reclassified as catch-up.

Ultimately we end up with $16,500 deferrals + $3,500 catch up + $5,500 PS = $25,500.

[Jakyasar]

interesting math and thank you for clearly explaining it.

Much appreciated.

[Jakyasar]

One more follow up question/confirmation

Owner over age 50

2019 w-2 is 20,000 - no other income or employed somewhere else

Deferral on the W-2 18,000

Want to maximize PS portion at 5,000 - max at 25%

$18,000+5,000 = 23,000 which is 3,000 over the 415c limit

Classify 3,000 of the 18,000 as catch-up.

So 15,000 deferral+5,000 PS=20,000 - 100% compensation limit

Am I correct?