IRS Clarifies 401(k) Catch-Up Rules
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.