Advanced Underwriting Consultants

Ask the Experts – May 5

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: For 2014, what is the maximum amount that can be contributed to a 401(k) plan if the participant is older than 50?

Answer: Generally, the overall limit on contributions to a 401(k) plan in 2014 is the lesser of the employee’s compensation or $52,000. This limit includes both employer contributions (e.g., matching contributions, profit sharing, nonelective contributions), and employee elective deferrals.

Therefore, if an employee makes the maximum elective deferral of $17,500 to his 401(k) plan, the most the employer may contribute is $34,500 ($52,000 limit less $17,500 elective deferral). But if an employee doesn’t make an elective deferral, the employer may contribute the full $52,000, unless other restrictions apply.

An employee who has reached age 50 can make an additional $5,500 yearly contribution to his 401(k) plan. The $5,500 catch-up contribution does not count against the plan’s $52,000 limit; so if an employee makes the full $17,500 elective deferral and the $5,500 catch-up contribution, the employer may still contribute $34,500 to the plan. Under this scenario, the effective contribution limit is $57,500.

However, if the employee contributed $17,500 without making a catch-up contribution, the employer can still only contribute $34,500 (for a combined $52,000 contribution in 2014). In other words, an employee over the age of 50 will only see an increase in his overall contribution limit if he takes advantage of the $5,500 elective deferral catch-up contribution.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.