Washington Administrative Code › Title 415 - Retirement Systems, Department of › Chapter 415-501 - Deferred compensation plan › PARTICIPATION IN THE PLAN › Section 415-501-430 - Are there exceptions to the annual deferral limits?

Current through Register Vol. 24-14, July 15, 2024
As allowed by the Internal Revenue Service, you may defer
				  more than the annual deferral limit if you qualify to use one of the "catch up"
				  provisions described in this section. You may not use both catchup provisions
				  during the same taxable year. The same annual limits apply for both Roth and
				  pretax deferrals. These limits are combined totals even if you contribute to
				  both.
(1)
Age 50 and
				over:
You may defer a higher amount in any year that you are age 50 or
				older. The maximum you may defer each year is the sum of the annual deferral
				amount for the current taxable year plus the age 50 and over catch up amount
				established by the IRS under 26 U.S.C. Section
				414(v). Beginning January
				2024, the catch-up amounts must be contributed to a Roth account if you made
				more than $145,000 in wages from your DCP employer in the prior calendar year.
				If you made $145,000 or less in wages from your DCP employer in the prior
				calendar year, then you have the option to contribute the catch-up amounts as
				Roth deferrals. Beginning January 2025, the $145,000 amount will be adjusted
				annually for inflation.
(2)
Three years before normal retirement age:
You may defer a higher
				amount during a period of three consecutive years immediately preceding the
				taxable year in which you reach normal retirement age as defined in WAC
				415-501-110
				(10). The maximum you may defer during each
				of the three years is the lesser of:
(a) Twice
				the annual deferral limit; or
(b)
				The sum of the annual deferral limit for the applicable years, plus the portion
				of the annual deferral limit for any prior taxable year that you have not
				previously used.
(i) For years prior to 2002,
				amounts you deferred under certain other plans must be considered in
				determining the unused amount, consistent with Treasury Regulation 1.457-4
				(c)(3)(iv).
(ii) A prior taxable
				year may be taken into account only if:
(A) It
				begins after December 31, 1978;
(B)
				You were eligible, during any portion of the taxable year, to participate in
				the plan; and
(C) Compensation
				deferred under the plan during that year, if any, was subject to a deferral
				limit under WAC
				415-501-420.
Three-year catch-up example one: At age 64, Pat, a PERS 2
				  member, declares their normal retirement age of 66 and begins deferring the
				  higher annual limit. Pat's intention is to retire at age 65 so that they can
				  use the higher catch-up amounts in their final year of employment.
After a year, at age 65, Pat decides that they would like to
				  work another year until age 66. Since Pat already declared age 66, the higher
				  limit amount cannot be used beyond the year they turn 65. They cannot change
				  their declared normal retirement age to 67 and continue with the higher
				  deferral amounts for a third year.
Though Pat cannot change the normal retirement age once
				  declared, there is no issue with working beyond the normal retirement age. They
				  will only be able to defer the standard limit amount for their age, not the
				  special three-year catch-up amounts in the year of their declared normal
				  retirement age or beyond.
Three-year catch-up example two: At age 60, Alex has 30 years
				  of service and declares their normal retirement age of 63 and begins to defer
				  the higher annual limit. At age 62, they decide to retire and at the time of
				  retirement defer their vacation leave cash out. This is acceptable as long as
				  their deferrals for the year are not in excess of the catch-up limit. The
				  declared age of 63 allows for catch-up deferrals in the calendar years that
				  Alex was 60, 61, and 62; retiring prior to age 63 does not affect the years the
				  higher deferral amounts are allowed.