Question

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1. Assume a corporate employer maintains a 401(k) profit sharing plan for its 6 employees in 2019. Employer contributions are allocated based on each employee’s compensation which is as follows:

Employee Compensation

A $500,000

B $120,000

C $80,000

D $60,000

E $50,000

F $40,000

Assume that all employees contribute the maximum amount, including the maximum elective deferral, to the plan and that B is the only employee over age 50. What is the maximum elective deferral contribution that each employee can make? What is the maximum deductible employer contribution the employer can make for each employee? If salary reduction amounts are too large in 2020, how can they be corrected and when can that correction be made?

Answer 1

Ans:

First we should know the structure of 401 (k) in year 2019 & 2020

Year 2019- The basic employee contribution limit for 2019 is $19,000, up from $18,500 in 2018. The $19,000 limit includes all elective employee salary deferrals, as well as any after-tax contributions made to a designated Roth account within your 401(k) or a special Roth 401(k) plan.

Year 2020 - The annual elective deferral limit for 401(k) plan employee contributions increased from $19,000 to $19,500 in 2020. Employees age 50 or older may contribute up to an additional $6,500 for a total of $26,000.

as based on above structures following details :

Maximum Contribution working

Employee	Contribution in Year 2019	Contribution Year 2020	Difference
A	$    19,000.00	$     19,500.00	$     500.00
B	$    19,000.00	$     26,000.00	$ 7,000.00
C	$    19,000.00	$     19,500.00	$     500.00
D	$    19,000.00	$     19,500.00	$     500.00
E	$    19,000.00	$     19,500.00	$     500.00
F	$    19,000.00	$     19,500.00	$     500.00
Total	$1,14,000.00	$ 1,23,500.00	$ 9,500.00

Hence in year 2020 maximum contribution is $19500 and above 50 years employee have $26,000

so maximum contribution in year 2020 will be $ $1,23,500 which is higher than 2019 by $9500 .