Catch up in excess of 100% of compensation

Hi

This is a 2019 related question to confirm if my understanding is correct:

2019 w-2 is $30,000

Can I do the following:

PS contribution $7,500

401k Deferral $19,500

Catch up $6,000 - not limiting to 100% of pay

OR

2019 W-2 is $20,000

Can I do the following:

401k Deferral $19,500

Catch up $6,000 - not limiting to 100% of pay

Thank you and happy New Year and holidays

No.

From the IRS:

A participant can make catch-up contributions for a year up to the lesser of the following amounts:

• The catch-up contribution dollar limit, or
• The excess of the participant's compensation over the elective deferral contributions that are not catch-up contributions.

Since you said this is for 2019, then you can not do either, since the 2019 deferral limit is $19,000.

Assuming you meant 19,000, and also assuming that the W-2 amounts you gave include deferrals, then you can do the first one but not the second one. How would you defer more than you earned?

You can't defer more than 100% of pay. Employer contributions plus catch-ups can take you over the 415(c) limit [dollar or percentage] but someone with only $20K in compensation can't defer $25K.

1 hour ago, C. B. Zeller said:

Since you said this is for 2019, then you can not do either, since the 2019 deferral limit is $19,000.

Assuming you meant 19,000, and also assuming that the W-2 amounts you gave include deferrals, then you can do the first one but not the second one. How would you defer more than you earned?

Can't do the first one either or at least not the full amount.

On 12/27/2019 at 3:43 PM, Bill Presson said:

Can't do the first one either or at least not the full amount.

Why? I mean assuming using the correct 2019 limits

$30,000 pay

$25,000 deferral (19K in 415 limit, 6K not part of 415 limit)

$7,000 PS contribution.

You get $26K in 415 limit which is less than 100% limit.

On 12/27/2019 at 3:54 PM, Lou S. said:

Why? I mean assuming using the correct 2019 limits

$30,000 pay

$25,000 deferral (19K in 415 limit, 6K not part of 415 limit)

$7,000 PS contribution.

You get $26K in 415 limit which is less than 100% limit.

I agree with the above.  Catch-up is not included for 415 limit, so total contributions (including catch-up) CAN exceed 100% of compensation.

On 12/27/2019 at 3:54 PM, Lou S. said:

Why? I mean assuming using the correct 2019 limits

$30,000 pay

$25,000 deferral (19K in 415 limit, 6K not part of 415 limit)

$7,000 PS contribution.

You get $26K in 415 limit which is less than 100% limit.

Nope. You're right. Dang. Hate when I make a mistake. Almost got through the whole year, this time.

?

Thank you all for your contributions. Totally can exceed 100% of pay as long as it is catch up only.

A happy and healthy New Year.

All the best,

Revisiting this issue as I now have the actual w-2.

It is 27,200. If only ps, can do up to 6,800 @25% deduction limit

As catch-up is not part of the 415(c) limit, can the client do the following?

401k deferral           19,000

PS Allocation            6,800 - may choose a lesser limit, do not know yet

Total                          25,800 - less than 100% of pay

plus catch up             6,000

Total                         31,800

Thank you for your comments.

I'm not sure what "plus catch up" means here but I think you're asking if the employee can get $12,800 in profit sharing? Let's see:

• Annual additions = 19,000 (deferral) + 12,800 (profit sharing) = 31,800
• 415 limit = lesser of 100% of comp or 56,000 = 27,200
• Annual additions exceeds the 415 limit by 31,800 - 27,200 = 4,600
• This is less than the catch-up limit for the year so reclassify 4,600 of deferrals as catch-up
• Amount of deferrals that counts for annual additions is now 19,000 - 4,600 = 14,400
• For 415 we have 14,400 + 12,800 = 27,200

So yes, you can do $12,800 in profit sharing, and it will result in $4,600 of the deferrals being reclassified as catch up.

C.B. Zeller your math is correct as it pertains to 415 but if I understand the OP correctly the $12,800 employer contribution would exceed the deductible limit. Unless there are other participants and this cross tested somehow as $12,800 / $27,200 ~ 47% of pay.

I agree, I did not consider the deduction limit in my reply. It only occurs to me now that 6,800 is exactly 25% of 27,200 which might suggest that this person is the only participant in the plan.

It is a one person plan and cannot exceed 6.8k of psp as it violates the 25% deduction limit.

I meant the catch-up for age over 50 as not applying to the 415 limit.

Any comments/corrections?

Thank you

Are you asking if employer contributions can be considered catch up? The answer is no. Only deferrals can be used as catch up.

18 hours ago, Jakyasar said:

It is a one person plan and cannot exceed 6.8k of psp as it violates the 25% deduction limit.

I meant the catch-up for age over 50 as not applying to the 415 limit.

Any comments/corrections?

Thank you

 

$19,000 deferral + $6,800 psp = $25,800 < $27,200  100% of pay so you are OK for 415.

Since the PSP does not cause you to exceed any applicable limit (in this case 415) you don't have any deferral to recharacterize as catch-up.

Lou S.

Following up on this as I was just informed of what they did without me knowing. This calculation always puzzles me:

"$19,000 deferral + $6,800 psp = $25,800 < $27,200  100% of pay so you are OK for 415."

Does that mean they can now add the 2019 catch up of $6,000 thus bringing the total to $31,800?

If not correct, what is the maximum deposit they can have for 2019 between deferral, catchup and profit sharing?

Thank you

Correct for 1 person plan.  The $6,800 can go up to $8,200 if there are other participants in the PS who are getting less than 25% because the 25% limit is a plan wide limit and doesn't apply at the participant level. 

1 hour ago, Jakyasar said:

Lou S.

Following up on this as I was just informed of what they did without me knowing. This calculation always puzzles me:

"$19,000 deferral + $6,800 psp = $25,800 < $27,200  100% of pay so you are OK for 415."

Does that mean they can now add the 2019 catch up of $6,000 thus bringing the total to $31,800?

If not correct, what is the maximum deposit they can have for 2019 between deferral, catchup and profit sharing?

Thank you

She was w-2 employee right? 2019 deferrals are over you can't retroactively defer the catch-up now.

Correct a w-2 employee.

W-2 box 1 is 2,200 and box 5 is 27,200, the full 25,000 already reflected as deferral for 2019 so no retroactive deferrals.

For Lou S, do you agree with Mike Preston's analysis as well?

Thank you both

Be safe