402(g) Limit on Elective Deferrals – It’s Personal

Code section 402(g) limits the amount an individual can defer to a 401(k) plan during a calendar year, and it applies at an individual level, not at a plan level.

An individual’s elective deferrals are the sum of all pretax and Roth deferrals to a 401(k) plan plus any salary reductions under a 403(b) plan, a SAR-SEP, and SIMPLE-IRA.  Because the 402(g) limit is a personal limit, the total contributions to all plans for the year are used to determine whether the maximum is exceeded.

Code section 401(a)(30) requires that the deferrals to a 401(k) plan for any participant not exceed the 402(g) limit. Therefore, if a participant defers more than the 402(g) limit within a single 401(k) plan, the plan’s tax qualification may be threatened.

If a participant does exceed the applicable Code section 402(g) limit for the calendar year, the excess amount must be distributed and must be included in the individual’s gross income.

Please note that if you are at least age 50 at any time during the calendar year, you may exclude any catch-up contributions that you are eligible for in determining whether or not the 402(g) limit has been exceeded.

Do you have additional questions regarding your elective deferrals? Connect with a Watkins Ross actuary today to discuss your retirement plans and determine whether or not you need to take extra steps to avoid penalties.

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