Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

An individual can contribute to a Roth 401(k) even if he is also a participant in other retirement plans offered by the same or another employer; however, participation in another plan may limit the amount that may be contributed (see “B”). B. How much may be contributed. The maximum amount that may be contributed to a DRAC is whatever maximum amount of elective deferral contribution the participant may make to his 401(k) plan for the year in question. § 402(g)(1)(B) . The dollar limit for elective deferrals in 2006 and later years is $15,000, plus an additional $5,000 “catch-up” contribution if the participant is 50 or older by the end of the year. § 402(g)(1)(B) , (C) . Cost-of-living adjustments (COLAs) increase both the base amount ( § 402(g)(4) ) and the catch-up contribution ( § 414(v)(2)(C) ) after 2006. For 2009–2011, the base and catch-up amounts are $16,500 and $5,500 respectively. Notice 2009-94 , 2009-50 IRB 848; IR- 2010-108. Note the contrast with IRAs, where the “catchup contribution” for individuals over age 49 is not subject to a COLA. ¶ 5.3.03 . To find each year’s maximum permitted contribution amount, see Ed Slott’s IRA Advisor newsletter or Denise Appleby’s Quick Reference charts ( Appendix C ). The DRAC option does not increase the amount the participant may contribute to a plan through elective deferrals. Rather, the participant may choose to put his total permitted elective deferral contribution amount into a DRAC, or into a traditional 401(k) account, or partly into each. For example, in 2010 an over-age-49 participant with sufficient compensation can (if permitted by his plan) contribute $22,000 to his regular 401(k) account, or $22,000 to a DRAC; or he can send part of his elective deferrals to a DRAC and part to a regular account, as long as the combined total so contributed does not exceed $22,000. The elective deferral limits apply to an individual based on all elective deferral plans he participates in (with this or any other employer; § 402(g) ); and § 415 also limits the amount that may be contributed. These limits are beyond the scope of this book; see instead Chapter 27 of The Pension Answer Book ( Appendix C ). C. Election is irrevocable. The election to have part of one’s compensation contributed to a DRAC is irrevocable once the money has been contributed to the plan. Thus, a participant cannot retroactively designate a DRAC contribution as a regular contribution or vice versa. Reg. § 1.401(k)-1(f)(1)(i) . This is unlike a Roth IRA, contributions to which can be withdrawn or recharacterized for a certain period of time, if the contributor changes his mind; see ¶ 5.6 . The irrevocability of the DRAC decision will make planning more difficult; a participant might prefer to wait until the end of the year (when he has a better idea of his income and tax situation) to decide whether he wants a tax deduction now or tax-free income later. D. What may be contributed to a DRAC. The ONLY contributions that can go into a DRAC are: (1) certain rollovers from other DRACs (see ¶ 5.7.07 ); (2) a participant’s post-2005 elective deferral contributions (Reg. § 1.401(k)-1(f)(3) , third sentence); and (beginning 9/28/10), rollovers of distributions from the employee’s “traditional” account in the same retirement plan (see ¶ 5.7.11 ). This means that: