Set Up a Catch-Up 401(k) Deduction

Instructions for setting up a catch-up 401(k) pre-tax deduction, commonly used to accommodate employees over age 50 who wish to withhold amounts beyond the normal limit.

These instructions include how to set up a pre-tax group; specifying which earnings the 401(k) deduction should apply to, as well as setting up employee-specific elections for the deduction; and guidance on making the deduction pretax for employees.

Click here to view a tutorial.

Step One: Create a Pre-Tax Deduction Group

Prior to creating a catch-up 401(k) deduction, you must set up a pre-tax deduction group; the system uses the group to apply limits across multiple 401(k) deductions.

To create a pre-tax deduction group:

  1. Open the PR Pre-Tax Deduction Groups form and click the New Record icon.
  2. In the Pre-Tax Group field, enter a number for the group.
  3. In the Description field, enter a description for the group.
  4. Specify the group's 401(k) annual limits.
    • For standard or Roth 401(k) employee contributions, use the Standard Annual Contribution Limit field.
    • For catch-up 401(k) employee contributions, use the Catch up Annual Contribution Limit field.
    • For 401(k) employer match liabilities, use the Annual Compensation Limit field.
Step Two: Set Up the Deduction Code
  1. Open the PR Deductions/Liabilities form and click the New Record icon.
  2. In the Dedn / Liab Code field, enter an unused number.
  3. In the Description field, enter a description.
  4. In the Type field, select Deduction.
  5. In the Calculation Category field, select E-Employee.
  6. In the GL Account field, press F4 to select the appropriate GL liability account.
  7. In the Method field, select A-Amount.
  8. In the Rate / Amount #1 and Rate / Amount #2 fields, enter 0.00000.
  9. In the Limit section, select the Calculated Amount option.
  10. The Amount field defaults to 0.00; accept the default. You will specify the catch-up limit in the PR Pre-Tax Deduction Groups form.
  11. In the Applied field, select A-Annually.
  12. Select the Accumulate subject amounts check box.
  13. Select the Pre-Tax Deduction check box.
  14. Select the Catch up Deduction check box.
  15. In the Pre-Tax Group field, press F4 to select a pre-tax group.
  16. If you want the deduction amounts to update automatically to an Accounts Payable invoice, select the Automatic Update to Accounts Payable check box on the Addl Info tab.
Step Three: Add the Earnings that Contribute to the Catch-Up 401(k) Deduction Amounts

The system bases the employee 401(k) contribution amounts on the earnings codes you add to the basis of the deduction. Add the same earnings codes here as are set on the 401(k) deduction(s) you are matching.

You can add codes to the basis in two ways:

  1. Option 1: Add codes to the basis one at a time
    1. Open the PR Deductions and Liabilities form.
    2. In the Dedn / Liab Code field, enter the code that needs codes added to its basis. Press F4 to select from a list of valid codes.
    3. On the Basis Codes tab, in the EDL Type field, select the appropriate type - Earnings, Deduction, or Liability.
    4. In the EDL Code field, enter the code number or press F4 to select from a list of valid codes.
    5. Repeat to add other EDL codes that should contribute to the basis.
  2. Option 2: Add multiple codes to the basis.
    1. Open the PR Deductions and Liabilities form.
    2. In the Dedn / Liab Code field, enter the code that needs codes added to its basis. Press F4 to select from a list of valid codes.
    3. Click Add Basis Codes.
    4. In the PR Add DL Basis Codes form that displays, do one of the following:
      • To apply the same basis codes as are applied to an existing deduction or liability code, select the Copy basis codes from another DL Code option. Enter the deduction or liability code in the DL Code to Copy From field. Press F4 to select from a list of existing codes.
      • To apply all existing eligible earnings, deductions, and liability codes as the basis, select the Add all eligible Earnings and DL Codes to basis option.
    5. Click Add. If you do not receive a confirmation message that Basis Codes were successfully added, click Refresh at the top of the form
    6. Delete from the grid any individual earnings, deduction, or liability codes that do not apply
Step Four: Enter Employee-Specific Elections for the Deduction

Once you create the catch-up 401(k) deduction, you must specify individual employee elections.

  1. Open the PR Employee Dedns / Liabs form and click the New Record icon.
  2. In the Employee field, press F4 to select an employee.
  3. In the Dedn / Liab Code field, press F4 to select the appropriate 401(k) deduction code.
  4. Select the Employee-Based check box.
  5. In the Frequency field, press F4 to select a frequency code.
  6. In the Processing Seq # field, enter a number to indicate the order the deduction should be calculated.
  7. In the Calculations section, select one of the following:
    • If the employee election is a set amount, select Override Standard Rate/Amount and enter the amount in the Rate / Amount field.

    • If the employee election is a percentage, select Override Method - Use Rate of Gross and enter the rate as a decimal in the Rate / Amount field.

      Important: Do not select Override Standard Limit as a method to override 401(k) limits. The pre-tax deduction group determines the limit.
  8. Repeat the above steps for each applicable employee.
Step Five: Make the Deduction Code Pre-tax

Since this 401(k) deduction code is pre-tax, you need to add it to the basis for each of the deductions and liabilities where the subject and eligible amount should be reduced by the pre-tax deduction amount.

  1. Open the PR Deductions and Liabilities form, select the applicable code, and select the Basis Codes tab.
  2. In the EDL Type column, select Deduction from the drop down.
  3. Enter the code number for the applicable 401(k) deduction.
  4. Repeat the above steps for each applicable deduction/liability code whose subject and eligible amount should be reduced by the pre-tax deduction amount.