Thanks for the explanation. Feeling better now. I'm guessing we have a safe harbor plan - as the company also offers a Non-qualified Deferred Comp plan. I elected to place a small amount there as a hedge. But, I also misunderstood the 50+ rule, and assumed next year (the year after I turned 50) to be start of catch-up contributions. The HR guidance is basically, call your tax advisor - so I'm guessing my experience will match yours.I've made a bunch of posts on this topic, but I know this forum makes research messy.
If you are not in a safe harbor plan, your contributions may be limited, or they may be returned. The plan has until March 15th of the following year to notify HCEs of a return of contributions. Notification need not be a phone call or anything. It can just be a transaction showing up in your account, and a check arriving sometime later. Even if you are in a safe harbor plan, after-tax contributions may still be returned.
Returned contributions are not that bad from a tax perspective. You won't owe a penalty, but you will owe tax on pre-tax deferrals that get returned to you, and any earnings on those contributions. You do not need to calculate the earnings yourself. You will be told by the plan. You don't have to amend your return. You just file it for the tax year the return of contributions occurs. Roth contributions and after-tax contributions have no tax consequences at all, but you will have to pay tax on any earnings on those contributions.
Plans may limit contributions proactively if they suspect you will be an HCE, but whether or not you are an HCE based on comp can only be known once the comp is earned. So some plans will look back on the prior year and then limit contributions, assuming your HCE status will continue.
It's a waste of time to seek information about this from HR in my direct experience. They don't know, but they might answer anyway. If your company is small enough that it's realistic to form a relationship with the plan administrator, they will usually give you correct answers. This is normally someone high up in your company involved with benefits. The plan administrator is responsible for making sure the plan complies with the plan document. It's not the same as the custodian, which is Vanguard.
What I normally do is contribute more than I think will be allowed and maximize any match available. If I get a return of contributions or contributions limited, so be it.
Statistics: Posted by chet96 — Fri May 10, 2024 9:30 am — Replies 6 — Views 1032