IV. Elective deferrals – contribution limitation

Statement of Requirement: Code §§ 401(a)(30), 402(g) and 414(v); Reg. § 1.414(v)- 1; Notice 2024-2, 2024-2 I.R.B. 316

(Note to reviewer: Elective Deferrals by a participant may not exceed the dollar limit in effect under Code § 402(g) in any calendar year.)

Sample Plan Language:

No participant shall be permitted to have Elective Deferrals made under this Plan, or any other plan, contract or arrangement maintained by the Employer, during any calendar year, in excess of the dollar limitation contained in Code section 402(g) in effect for the participant's taxable year beginning in such calendar year. In the case of a participant aged 50 or over by the end of the taxable year, the dollar limitation described in the preceding sentence includes the amount of Elective Deferrals that can be Catch-up Contributions. The dollar limitation contained in Code section 402(g) was $22,500 for taxable years beginning in 2023. This limit is adjusted by the Secretary of the Treasury for cost-of-living increases under Code section 402(g)(4).

Catch-up Contributions

5 | Cash or Deferred Arrangement (CODA) LRM Package 01-2024

“ Catch-up Contributions” are Elective Deferrals made to the Plan that are in excess of an otherwise applicable plan limit and that are made by participants who are aged 50 or over by the end of their taxable years. An otherwise applicable plan limit is a limit in the Plan that applies to Elective Deferrals without regard to Catch-up Contributions, such as the limits on annual additions, the dollar limitation on Elective Deferrals under Code section 402(g) (not counting Catch-up Contributions) and the limit imposed by the actual deferral percentage (ADP) test under section 401(k)(3). Catch-up Contributions for a participant for a taxable year may not exceed (1) the dollar limit on Catch-up Contributions under Code section 414(v)(2)(B)(i) for the taxable year or (2) when added to other Elective Deferrals, _____ percent of the participant’s Compensation for the taxable year. The dollar limit on Catch-up Contributions under Code section 414(v)(2)(B)(i) was $7,500 for taxable years beginning in 2023. After 2023, the $7,500 limit is adjusted by the Secretary of the Treasury, in multiples of $500, for cost-of-living increases under Code section 414(v)(2)(C). [INSERT A PERCENTAGE ABOVE, NOT LESS THAN 75%, OF THE PARTICIPANT’S COMPENSATION FOR THE TAXABLE YEAR FROM WHICH ELECTIVE DEFERRALS ARE PERMITTED.]

(Note to reviewer: For taxable years beginning after December 31, 2024, Section 109 of the SECURE 2.0 Act of 2022 increases the catch-up limit to the greater of $10,000 or 150 percent of the age 50 catch-up limit in effect for the year for individuals who will attain ages 60, 61, 62 and 63 during the tax year. After 2024, the $10,000 limit is adjusted by the Secretary of the Treasury for cost-of-living increases. Plan language and adoption agreement elections can include this secondary catch-up limit for those periods.

For a SIMPLE 401(k) plan within the meaning of Code § 401(k)(11), the increased limit is the greater of $5,000 or 150% of the regular catch-up limit for 2025, indexed for inflation. See also Treas. Reg. § 1.401(k)-4 regarding SIMPLE 401(k) plan document requirements. See CODA LRM XIX.)

(Note to reviewer: If a plan that permits catch-up contributions limits the amount of Elective Deferrals a participant is allowed to make, the limit may not be a percentage that is less than 75 percent of compensation. Reg. § 1.414(v)-1(e)(1)(ii)(B) provides that for purposes of complying with the universal availability requirement applicable to catch-up contributions, an employer plan can restrict elective deferrals of any employee (including a catch-up eligible participant) to amounts available after other withholding from the employee's pay (e.g., after deduction of all applicable income and employment taxes). For this purpose, an employer limit of 75% of compensation or higher will be treated as limiting employees to amounts available after other withholdings.

Catch-up Contributions are not subject to the limits on annual additions, are not counted in the ADP test and are not counted in determining the minimum allocation under Code § 416 (but Catch-up Contributions made in prior years are counted in determining whether the Plan is top-heavy).)

6 | Cash or Deferred Arrangement (CODA) LRM Package 01-2024

(Note to reviewer: The following must be included in a Safe Harbor § 401(k) Plan, effective for plan years beginning after December 31, 2023.)

If this is a safe harbor section 401(k) plan that replaced a SIMPLE IRA plan mid-year, the total amount that may be contributed as Elective Deferrals to this plan combined with the Elective Deferrals and Catch-up Contributions made to the terminated SIMPLE IRA plan may not exceed the weighted average of the salary reduction contribution and elective contribution limits for each of those plans over the number of days in the transition year during which each plan was in effect.

(Note to reviewer: The plan may express the limitation also by limiting Elective Deferrals to this plan to the sum of (1) and (2); less (3), where:

(1) is the § 402(g) limit x number of days this Plan is in effect divided by 365 (2) is the annual limit on salary reduction contributions (including catch-up

contributions) applicable to a SIMPLE IRA x number of days this plan is in effect divided by 365 (3) is any salary reduction contributions made to the SIMPLE IRA for the year.

See Q&A G-6 of Notice 2024-2.)