Voluntary After-Tax Employee Contributions

[emmetttrudy]

Employee participates in Plan A for part of 2020 and contributes the maximum of $19,500 employee Roth Contributions. Employee terminates service and moves to a different company where he/she is immediately eligible to participant in Plan B (there is NO controlled group between the two entities). Plan B permits after-tax voluntary employee contributions. No employer contributions are allocated in Plan B. Can the employee deposit a maximum of $57,000 as an after-tax voluntary contribution?

 

I believe the employee contribution is a calendar year limit (maximum of 19,500), but is the after-tax voluntary contributions subject to the 415 limit which is a Plan limit?

[MWeddell]

Addressing your second question first, the 415(c) limit on annual additions is based on the "limitation year."  Usually that is defined in the plan document to be the same as the plan year but not always.  You'll have to check the plan document.  Look for a definition of "limitation year" or else you'll find it in the provision dealing with the limit on annual additions.

I agree with your first paragraph too provided that when you write "there is NO controlled group between the two entities" you are looking for > 50% common ownership, not the usual 80% common ownership threshold for determining a controlled group.  There is a special rule in Code Section 415 that lowers the common ownership threshold only for 415 limit purposes.

It feels aggressive though, doesn't it?  I'd still caution the participant to check with his/her tax advisor.

[emmetttrudy]

Limitation year = Plan year, so no worries there.

And correct, no mutual ownership whatsoever. Tow completely different companies with no affiliation or commonality.

It does feel aggressive, I agree. But, I haven't been able to find something that convinces me it would not be permissible, or would be in excess of a particular limit.

[Bill Presson]

It might be aggressive but I think it's doable. Will the after tax contributions pass the ACP test?

[Bri]

I'd have to think the person's not an HCE in the year they're hired (unless they bought into their new company), so hey, the new sponsor might even LOVE the 57,000 contribution for ACP testing purposes (presuming no carveout)!  Of course going back to the 415 issue, she'd have to actually earn 57,000 in wages at her new job.  And the standard disclaimer to make sure Plan B doesn't have a % of pay limit on the after-tax.

[Bill Presson]

58 minutes ago, Bri said:

I'd have to think the person's not an HCE in the year they're hired (unless they bought into their new company), so hey, the new sponsor might even LOVE the 57,000 contribution for ACP testing purposes (presuming no carveout)!  Of course going back to the 415 issue, she'd have to actually earn 57,000 in wages at her new job.  And the standard disclaimer to make sure Plan B doesn't have a % of pay limit on the after-tax.

True.