IRS Clarifies 401(k) Catch-Up Rules

New proposed Treasury Regulations expected to be published in today's Federal Register will clarify certain areas of confusion regarding the age 50 catch-up rules for 401(k) plans that were introduced as part of last year's tax act.

The new tax act provides that employees who are 50 or older are entitled to make catch-up contributions totaling $1,000, in addition to their regular maximum contributions, to a company-sponsored 401(k) plan. The annual catch-up contribution amount will increase until 2006 at which time the amount will be $5,000.

The proposed regulations will explain that employees who turn 50 before the end of a calendar year will be considered to be 50 as of January 1 of that calendar year, thus allowing them to make catch-up contributions as of the first of the year.

In addition, the proposed regulations explain that the catch-up contribution is an annual amount, not a per-plan amount. Employees who work for more than one employer during the year are limited to the maximum catch-up contribution amount for the entire year.