Verifying 401(k) Deduction and 401(k) Catch-up Deduction Amounts

If your company has a 401(k) plan and you have employees over 50 that participate in catch up deductions, you may want to verify that catch-up deduction amounts are correct on paychecks that include both the last regular 401(k) deduction and the first 401(k) catch-up deduction.

To verify these amounts, refer to the following steps and sample data:

Table 1. Sample data: current payroll in PR Employee Pay Seq Control

DL Code

Rate/Amount

Subject

Eligible

Amount

Limit YTD

Limit Reached?

401-1

.08

1000.00

1000.00

80.00

17490.00

No

401-2

.02

1000.00

500.00

10.00

17500.00

Yes

401-3

$30.00

1000.00

1000.00

0.00

17500.00

Yes

401-C

.05

1000.00

800.00

40.00

40.00

No

StepsExample based on sample data
1.Confirm that the 401(k) standard annual contribution limit (set in the Pre-Tax Group) has been reached.If Yes, go to Step 2.
2.Determine the total normal 401(k) deduction amount that would have been deducted from the employee's paycheck if the limit had not been met.
Table 2. Normal deduction amount
401-1.08 x 1000.00 =80.00
401-2.02 x 1000.00 =20.00
401-3Amount = 30.00
Total:130.00
3.Compare the total normal 401(k) amount to the actual calculated amount that was deducted on this paycheck. The actual amount will likely be less than the normal amount because this is the last regular 401(k) deduction.

Normal = 130.00


Calculated = 90.00 (80.00 + 10.00)


Normal 130.00 - Calculated 90.00 = 40.00

In this scenario, 40.00 can be used towards 401 catch-up in this pay period.

4.Determine the normal catch-up deduction amount for this pay period.50.00 normal calculated catch-up contribution (.05 x 1000.00 = 50.00), or 50.00 amount when Amount based.
5.Compare the normal 401(k) amount to the normal catch-up deduction amount. The system uses the lesser of these two amounts.

Normal calculated catch-up = 50.00


Remaining 401(k) allotted to catch-up for this pay period = 40.00

In this scenario, the system posts 40.00 to 401-C in PR Employee Pay Seq Control.

6.

Check the Eligible amounts.

When the catch-up code is:

  • Rate-based - Back calculate the Eligible amount for catch-up. 40.00 / .05 = 800.00

  • Amount based - Eligible amount has little meaning and would be posted as 1000.00

In subsequent pay periods where only catch-up is calculated, the 401-C deduction code will calculate normally until which time the deduction limit is reached for this catch-up deduction code.

For more information about setting up pre-tax deductions, see Setting Up Pre-Tax Deductions.