Off calendar plan year (6/30 year end) - catch-up reclass

I have a plan that is a 6/30 year end. For this plan, there is 1 participant that always has 401k reclassed as catch-up to avoid refunds.

This has not been an issue in prior year, because he never actually contributed catch-up - his 401k for the plan year and calendar year was less than the maximum 401k.

For the period 1/1/24 - 6/30/24, he contributed $15,000 and we had to reclass $2,500 as catch-up to avoid refunds.

Does this necessarily limit how much we should have limited his 7/1/24-12/31/24 contributions? 

Is he limited to $12,500 for 7/1/24-12/31/24? If he contributed $15,000, is a refund fo excess deferrals required?

It seems like there are several details missing to be able to walk through what needs to be done.  The reference to refunds implies ADP testing. The reference to the first half of 2024 seems to reference 1/2 of the sum of annual limits on deferrals plus catch up contributions.

The short version of sorting this out is:

• ADP testing is done using deferrals made during the plan year (e.g. 7/1/2023-6/30/2024)
• The limit on elective deferrals applies to elective deferrals made during the calendar year (e.g. 1/1/2024-12/31/2024)
• The limit on catch up contributions applies to catch up contributions made during the calendar year (e.g. 1/1/2024-12/31/2024)

Here is a detailed example for how to apply the limits for a non-calendar year plan:

https://tra401k.com/news/case-of-the-week-deferral-limits-for-off-calendar-year-plans/

It is somewhat tedious, but it will get you to the right answer.

Thanks for the response. My issue is more when the ADP test for the 6/30/24 plan year fails and we have to reclass some of the contributions as catch-up to avoid refunds. Does that reclass decrease the amount that can be contributed for all of 2024?

So the maximum for 2024 is $30,000. But if we had to reclass $2,500 of the 1/1/24-6/30/24 as catch-up, wouldn't that mean that $27,500 is the maximum contribution for 2024? Otherwise we would end up with $10,000 of total catch-up for 2024. ($2,500 re-class + $7,500 normal catch-up)

Keep good records on timing of deposits and which calendar year limit is applied to which deposit so you know what actually goes in your tests.

I'm going to assume from your post this is the first you had recharacterization due to failed test and that he had no calendar year catch-up in prior years.

For calendar year 2024 the limit is $30,500. To make it somewhat easy I'm going to say the participant defers $15,250 in the first 6 months and $15,250 in the second 6 months of calendar year 2024.

You do your 6/30/2024 test and find he needs a "refund" of $2,500 to pass the test. Since he has only deferred $15,250 as of 6/30/2024 you have no refund but have now used $2,500 of the 2024 limit as of your 6/30/2024 test date.

So when he defers the remaining $15,250 in the second half of 2024 $5,000 is recharecterized as 2024 catch-up (because $2,500 was already rechareterized on 6/30/24) and does not go into your testing for the plan year ending 6/30/2025. The remaining $11,250 along with any deferrals up to the 2025 402(g) limit in the first half of 2025  go into your 6/30/2025 testing.

Hope that's clear and helps.

Thanks for the reply. In your example, it feels like the participant that deferred $15,250 in the first 6 months then deferred $15,250 in the second six months is double dipping when it comes to catch-up.

Because he contributed $30,500 for 1/1-12/31, there should be no catch-available to reclass. Just as if he had contributed $30,500 for a plan year 1/1-12/31. Any failing ADP test would result in refunds as no re-class would be available.

It seems like the off-calendar plan year is benefiting this participant.