Catch-up 60-63 clarification

I've not seen definitely how the age limitation works.  It is clear that someone who is age 59 on 1/1/2025 and turns 60 in 2025 are are eligible for the additional catch-up.

What about the person who is 63 as of 1/1/2025 and turns 64 before the end of 2025?  Things I read seem to say they must be 60-63 by the end of the year and might not be eligible for the catch-up if they turn 64 by end of year.  So early in 2025, at age 63 they should not defer the extra catch-up since they will turn 64 before end of year.  Payroll systems will handle this correctly in any event. 

Thank you,

Tom

Ok I see someone clarified this in an earlier post from me.  No super catch-up if turn 64 by end of 2025.

A caution: Employers, retirement plans’ administrators, and their service providers (and their software) tend to presume a participant’s tax year is the calendar year. And that might be right for about 99.99% of a plan’s participants. But one might want an off-system override for a participant who has a different tax year.
This is not advice to anyone.

Peter I don't think it matters because I'm pretty sure both the 401(K) limit and catch-up limits are calendar year limits tied to a single individual and plan year or number of plans does not matter.

The § 402(g) elective-deferral limit, and the § 414(v) age-based catch-ups relate to the INDIVIDUAL’s tax year, which can be a year other than the calendar year.

Under Federal income tax law, a taxpayer computes one’s taxable income “on the basis of the taxpayer’s taxable year.” I.R.C. § 441(a). Ordinarily, a taxable year is a yearly accounting period. I.R.C. § 441(b). Most (but not all) people use a calendar year. See I.R.C. § 441(c). A “calendar year” is “a period of 12 months ending on December 31.” I.R.C. § 441(d).

Further, the Internal Revenue Code’s general definitions include “taxable year” and “fiscal year”:

“The term ‘taxable year’ means the calendar year, or the fiscal year [defined in the next paragraph] ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. ‘Taxable year’ means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.” I.R.C. § 7701(a)(23).

“The term ‘fiscal year’ means an accounting period of 12 months ending on the last day of any month other than December.” I.R.C. § 7701(a)(24).

For § 402(g), “the elective deferrals of any individual for any taxable year shall be included in such individual’s gross income to the extent the amount of such deferrals for the taxable year exceeds the applicable dollar amount.” I.R.C. § 402(g)(1)(A).

For an age-based catch-up deferral amount that might be permitted because the participant is age 50 or older, the Internal Revenue Code defines an “eligible participant” as “a participant in a plan who would attain age 50 by the end of the taxable year[.]” I.R.C. § 414(v)(5)(A). A Treasury rule confirms this: “An employee is a catch-up eligible participant for a taxable year if [t]he employee’s 50th or higher birthday would occur before the end of the employee’s taxable year.” 26 C.F.R. § 1.414(v)-1(g)(3)(ii).

For a greater age-based catch-up deferral amount that might be permitted because the participant is age 60, 61, 62, or 63, the Internal Revenue Code refers to “an eligible participant who would attain age 60 but would not attain age 64 before the close of the taxable year[.]”I.R.C. § 414(v)(2)(B)(i).

While unusual, I’ve seen situations in which an individual’s taxable year is not the calendar year.

This is not advice to anyone.

11 hours ago, Peter Gulia said:

While unusual, I’ve seen situations in which an individual’s taxable year is not the calendar year.

I have never seen this, can you give us an example of when an individual's taxable year is not calendar year? 

Here’s IRS Publication 538 with some explanations about Accounting Periods. https://www.irs.gov/pub/irs-pdf/p538.pdf

Example: Although Jack is a W-2 employee with no business interests, he follows his wife’s taxable year so he can fit their joint income tax returns. Jill owns a farm and its businesses. Based on when Jill’s businesses harvest and sell the crops, the businesses and Jill end their accounting years as at October 31.

Example: Mary is an employee of a charity, and participates in its § 403(b) plan. Yet, almost all of the income that supports Mary’s life comes from a trust her great-grandfather created. That trust’s accounting year ends with February 28 or 29. Mary chooses to align her taxable year with that of the trust that is her primary source of income.

Example: Charlie is the chief executive of a business that ends its accounting year with June 30, issues its financial statements by late July, and pays Charlie’s bonus in early August. Charlie established August 31 as the end of her tax-accounting year.

This may help. https://www.irs.gov/publications/p538

Whoops - I see Peter already posted it!

P.S. - I've never seen it either. I'd hazard a guess that most of us haven't.

In my experience, software for payroll and retirement-services systems to apply § 402(g) and § 414(v) limits and opportunities is coded assuming every individual’s tax year is the December 31 year (and not attempting to ask whether an individual has a different tax year).

Yet, it can be useful to have some way to allow a variation for the rare situation in which an individual has a noncalendar tax year.