415c Maximum Contributions

When applying the maximum employer contribution amount to HCEs (60,000 for 2017 with catch-up), are the deferral amounts deducted from that maximum to equal the actual amounts available for employer contributions?

The 415(c) limit is 54,000 (for anyone earning at least $54,000) but the $6,000 catch-up is not part of the 415(c) limit.

So if you have employee over age 50 who deferred the maximum $24,000 (including catch-up) then  the remaining allocation to reach the 415(c) limit is technically $54,000 - $18,000 = $36,000.

Now if the employer allocation is less than or equal to $36,000 you are fine for 415(c), if the allocation is greater than $36,000 you are going to have a 415 excess that you need to deal with.

An example here: An HCE has $36,400 in compensation and deferred $12,000 pre-tax and $12,000 roth. Would her maximum employer contribution be $30,400 or $18,400? (Compensation less pre-tax deferral or pre-tax and roth plus catch up of $6,000)

What is the definition of Plan Compensation?  It often is W-2 compensation (box-1) with an add-back for deferrals (including catch-up), etc. I'm not following a maximum employer contribution of $30,400 if you have $36,400 in compensation (assuming adding back in deferrals to the definition of plan compensation).  Of course, the maximum is also subject to 25% deductibility...also, the HCE must be a greater than 5% owner at that compensation (assuming similar compensation each year). 

For 415, the answer is $18,400.  You may be further limited to the 25% of compensation for deductibility, depending on how many other participants in the plan and their allocations.

Deferrals count toward 415, but do not count as contributions for deductibility.

I apologize - misread the question.....it helps to read closely...even more so at night...

And this is assuming the HCE has W-2 income and not self-employment compensation.

...the fun circular calculation to get to the correct SE comp.

I thought you cannot go over 100% of comp. Would it make answer $12,400?

3 minutes ago, Calavera said:

I thought you cannot go over 100% of comp. Would it make answer $12,400?

Yes and no. You can't DEFER more than 100% of comp but you can be allocated 100% of comp plus the $6,000 catch-up and not exceed the 415(c) limit.

You could in theory have an employee over 50 who makes $10,000K wages, makes a $6,000 401(k) deferral and receives a $10,000 profit sharing contribution. The $6,000 would be recharaterized as catch-up due to the 415 limit being reached but the $10,000 profit sharing contribution.

Obviously you need the right demographics and additional eligible salary somewhere else to make the testing and deductions work out. And it won't ever in a 1 man shop.

A question on this topic....

If a catch-up eligible participant only defers $8,400.00 for the 2017 Plan Year, could we max his Profit Sharing out to $51,600.00, to reach $60,000.00?

^Yes. Assuming everything else works out.

After making the PS contribution, $6K of his deferral would be recharacterized as catch-up to avoid a 415(c) violation.

For 415 purposes he would be considered to have $2,400 deferral, $51,600 PS, $6,000 catch-up.

Thank you, Lou. I don't know why I suddenly could not remember this