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.

You may like these other stories...

Camp Hopes Estate Tax Will Be on Its Way OutAn article in Bloomberg said that Republicans are considering voting this year to repeal the U.S. estate tax, according to House Ways and Means Chairman Dave Camp (R.-Mich.). He...
Senate Takes Different Approach from House for Highway and Bridge FundEarlier this week, according to a New York Times article, the Senate agreed to fill the coffers of the fund that pays for highway and bridge repairs with...
There it stands, your client's 100-year-old, rickety, vermin-infested barn or former hotel or whatever the darn thing once was. And she's considering what to do with it. There are two words that can help her decide...

Upcoming CPE Webinars

Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.