true-up and $54k 401k limit

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international001
Posts: 464
Joined: Thu Feb 15, 2018 7:31 pm

true-up and $54k 401k limit

Post by international001 » Wed Jul 11, 2018 7:08 am

Hi

March 2018 I got a true-up of ~$3k.

My understanding was that this true-up should along all 2017 contributions towards 2017's $54k limit

viewtopic.php?t=218304

If adding it to my 401k 2017 contributions (including employer match), it would bring me over 2017's $54k limit

However, a Fidelity representative told me that these $3k would count towards 2018's $55k limit, so I don't have to worry. System is supposed not to allow to go over the $54k/$55k limit (and I haven't changed employers)

Anybody has an authoritative answer? Any IRS link? I don't trust anybody 100% anymore
Last edited by international001 on Wed Jul 11, 2018 8:53 am, edited 1 time in total.

magicrat
Posts: 458
Joined: Sat Nov 29, 2014 7:04 pm

Re: true-up and $54 401k limit

Post by magicrat » Wed Jul 11, 2018 7:34 am

any chance the true up went into a non-qualified plan?

international001
Posts: 464
Joined: Thu Feb 15, 2018 7:31 pm

Re: true-up and $54k 401k limit

Post by international001 » Wed Jul 11, 2018 8:48 am

No.. same 401k, no change of employer.
Last edited by international001 on Wed Jul 11, 2018 8:54 am, edited 1 time in total.

international001
Posts: 464
Joined: Thu Feb 15, 2018 7:31 pm

Re: true-up and $54k 401k limit

Post by international001 » Wed Jul 11, 2018 8:53 am

This link also seems to say that the true-up accounts for the year it's received

https://money.stackexchange.com/questio ... -year-x-co

Is the bogleheads thread wrong?

Spirit Rider
Posts: 8868
Joined: Fri Mar 02, 2007 2:39 pm

Re: true-up and $54k 401k limit

Post by Spirit Rider » Wed Jul 11, 2018 9:40 am

"Contributions count in the year they are made, so if your employer is (intentionally or unintentionally) late and contributes in year X+1, it counts for that year's limits."

The above blanket statement on that link is false. Reference IRS Publication 560 page 15. Employer matches for the last pay period are routinely made in the following year. It is common for profit sharing to be made in the 1st quarter for the previous year.

Every employer plan I am aware of always applies such contributions to the previous year. When would an employer defer a tax deduction for another year. While nothing prevents an employer from doing so with true-up contributions. Which is more likely a CSR of any 401k administrator is wrong or industry best practices are followed.

"When Contributions Are Considered Made
You generally apply your plan contributions to the year in which you make them. But you can apply them to the previous year if all the following requirements are met.
  1. You make them by the due date of your tax return for the previous year (plus extensions).
  2. The plan was established by the end of the previous year.
  3. The plan treats the contributions as though it had received them on the last day of the previous year.
  4. You do either of the following.
    1. a. You specify in writing to the plan administrator or trustee that the contributions apply to the previous year.
    2. b. You deduct the contributions on your tax return for the previous year. A partnership shows contributions for partners on Form 1065."

international001
Posts: 464
Joined: Thu Feb 15, 2018 7:31 pm

Re: true-up and $54k 401k limit

Post by international001 » Fri Jul 13, 2018 7:04 am

Spirit Rider wrote:
Wed Jul 11, 2018 9:40 am
"Contributions count in the year they are made, so if your employer is (intentionally or unintentionally) late and contributes in year X+1, it counts for that year's limits."

The above blanket statement on that link is false. Reference IRS Publication 560 page 15. Employer matches for the last pay period are routinely made in the following year. It is common for profit sharing to be made in the 1st quarter for the previous year.

Every employer plan I am aware of always applies such contributions to the previous year. When would an employer defer a tax deduction for another year. While nothing prevents an employer from doing so with true-up contributions. Which is more likely a CSR of any 401k administrator is wrong or industry best practices are followed.

"When Contributions Are Considered Made
You generally apply your plan contributions to the year in which you make them. But you can apply them to the previous year if all the following requirements are met.
  1. You make them by the due date of your tax return for the previous year (plus extensions).
  2. The plan was established by the end of the previous year.
  3. The plan treats the contributions as though it had received them on the last day of the previous year.
  4. You do either of the following.
    1. a. You specify in writing to the plan administrator or trustee that the contributions apply to the previous year.
    2. b. You deduct the contributions on your tax return for the previous year. A partnership shows contributions for partners on Form 1065."
This seems to reference when the enmployer deducts the 401k contribution. I'm not sure if it is the same that when the limit should be considered. But I know little about the jargon

Small update. After talking to another Fidelity representative, we went through docs and he thinks it would apply to previous year limit. Still, he wants to escalate the issue. Frustrating how little they know.

It it applies to previous year, why wouldn't my employer had stop the contributions to make sure I didn't over-contribute?

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