Advanced Underwriting Consultants

Question of the Day – April 3

Ask the Experts!

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

Question:  My client wants to maximize her contribution to her 401K plan, as the employer has a generous matching structure. The client is over 50, and thus can defer up to $17,500 of her earnings, plus an extra $5,500 for catch-up in 2013.  Does the extra $5,500 catch-up deferral increase the overall limit for employer and employee contributions to the plan?

Answer:  Yes.  For employees over 50, the catch-up contribution limit is also added to the $51,000 Section 415 limit—but only if the employee maximizes her contributions.

Here’s an excerpt from Code Section 414:

(v) Catch-up contributions for individuals age 50 or over

(1) In general

An applicable employer plan shall not be treated as failing to meet any requirement of this title solely because the plan permits an eligible participant to make additional elective deferrals in any plan year.

Thus, where the participant maximizes her age 50 deferrals to a 401K plan, the overall limit of employer and employee contributions in 2013 is increased from $51,000 to $56,500.

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.