Thursday, March 31, 2016

How much Roth can employees contribute in 2016?

If your plan allows for Roth 401(k) deferrals, your employees should be mindful of how these deferrals apply toward the maximum 402(g) limit. 

First, employees need to know that the maximum deferral limit is $18,000 in 2016. If employees are eligible for catch-up contributions, they can contribute an additional $6,000 above that. 

Deferrals—which include pre-tax 401(k) and Roth 401(k) contributions that employees request to have deducted from their pay—are combined and applied to the maximum deferral limit. For example, if employees wish to max out on their deferrals in 2016, they can contribute $10,000 in pre-tax and $8,000 in Roth. 

If employees are eligible for catch-up, either pre-tax or Roth can be deferred and combined toward the additional $6,000 limit. 

Also, be aware that the pre-tax and Roth deferrals are combined to calculate the Average Deferral Ratio for each employee if your plan is subject to ADP/ACP testing.