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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

Content is the opinion of the author and does not represent the position of any other person or entity. Information is from sources believed to be reliable but cannot be guaranteed.

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401(k) catch up contributions

originally posted: 1/20/2006  revised: 11/23/2010

Q: In 2005 the 401K limits were $14,000 with a $4,000 catch up. I contributed $14,000 in calendar 2005 to my 401(k) plan and was wondering if the "catch up" can be made before April 15, like a SEP allows and IRA's.

A: This is a tricky issue only because of the way that many self-employed people handle their accounting and the lax manner in which many smaller businesses handle their 401(k) plan filings. Assuming that both your business and personal tax year is the calendar year and that your final pay or bonus is decided in 2006 after the year-end accounting is complete, then it would be possible to defer all or part of your year-end bonus toward 2005 elective deferrals provided that your plan document provided for this election. Note that most small business 401(k) plans have not yet been modified to allow for "catch-up" contributions, so this is a moot point. If your plan has not been modified to allow catch-up contributions, first replace your plan documents first and then make the catch up contributions going forward from that date.

 It is common for some self-employed people to have no payroll transactions until after the close of the year. The common thinking is "how can I decide what I can defer to a retirement plan until I know how much I earned?" In this case it is permissible to make the 401(k) plan contribution at the same time as final salary transactions, even if after the end of the plan year. On the other hand, the IRS is clear that elective salary deferral contributions to a 401(k) cannot be made on a retroactive basis.

Extra "catch-up" contributions to retirement accounts are allowed at age 50.

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