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Intuit

Retirement Plan Catch Up Contributions

Overview

Information about and how to setup a retirement catch-up payroll item for 401-(k), 403(b), 457(b), or SIMPLE IRA.

Expected Outcome

You can set up a retirement catch-up payroll item for 401(k), 403(b), 457(b), 408(k), or SIMPLE IRA.

Assumptions

You have an active QuickBooks Desktop Payroll subscription and would like to set up a retirement plan catch-up payroll item for your employees.

Details

Beginning January 1, 2002, Congress approved legislation (The Economic Growth and Tax Relief Act of 2001) that allows participants in qualified deferred contribution plans who are age 50 or older to make additional pre-tax catch-up contributions.

Note: A participant who is projected to attain age 50 before the end of the calendar year is deemed to be age 50 as of January 1 of that year.

All qualified deferred contribution plans have an annual contribution limit. Such employee contributions are exempt from federal income tax withholding (and in most cases state income tax withholding) but they are subject to Medicare, Social Security and FUTA taxes.

The maximum annual deferral limits change every year, so the customer will need to manually change the limit in the payroll item each year. The employer should set up all employees who do not qualify for the catch-up contributions with the normal annual limit to avoid them exceeding his or her contribution limit.

The catch-up contribution maximum is the lesser of the applicable dollar amount or the employee's compensation for the year reduced by any other elective deferrals made during the year. The applicable dollar amount for 401(k) was set by EGTRRA (The Economic and Tax Relief Reconciliation Act of 2001).

See the Deferred Compensation chart for more information.

It is recommended that separate payroll items be setup in QuickBooks Desktop for the 401(k) Catch-up item.

    1. From the Lists menu, select Payroll Item List.
    2. Select Payroll Item and select New.
  1. Select Custom Setup and select Next.
  2. On the Payroll item type screen, select Deduction, select Next.
  3. Enter a name for the item in the Enter name for deduction box. Give the item a name that will be easily recognized (for example, "401(k) Catch-Up", " 403(b) Catch-Up", etc.).
  4. Enter the Agency information to which the liability is paid, and select a liability account from the drop-down menu, select Next.
  5. Select the Tax Tracking Type (usually 401(k), 403(b), etc.) from the drop-down menu, select Next.
  6. The taxes should automatically be set up based on the Tax Tracking Type chosen on the previous screen. These should not be changed, select Next.
  7. On the Calculate Based on Quantity window, choose Neither, select Next.
  8. Choose to calculate on gross in the Gross vs. Net window, select Next.
  9. Fill in the Catch-up limit on the Limity Type window, select Finish.
    1. Select the Employee Center and select the Employees tab.
    2. Double-click the employee in question to open the Edit Employee window.
    3. Select the Payroll Info tab.
    4. In the Additions, Deductions and Company Contributions section, select the new payroll items for the Roth 401(k), Roth 403(b), or Roth 457(b) from the Item Name drop-down list.
    5. Select OK.
    6. Repeat these steps for each eligible or participating employee.
  10. See Create paychecks for steps on how to create paychecks.

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