Elective-Deferral Contribution

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Elective-Deferral Contribution

A contribution to an IRA or 401(k) made from an employee's pretax income. That is, an elective-deferral contribution is tax-deferred, meaning that the retirement account holder does not pay taxes on what goes into the account until he/she begins making withdrawals.
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After receiving the notice, employees must have a "reasonable period of time" before the first elective deferral contribution to make an affirmative election of contributions and investments.
As you may be aware, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) provided that individuals age 50 or over may make additional elective deferral contributions to retirement plans that permit elective deferrals- i.
Consequently, 401(k) elective deferral contributions will no longer need to be limited to ensure that employer deduction limits are not exceeded.
Under the old law, for purposes of the deduction limits, employee elective deferral contributions to a 401(k) plan are treated as employer contributions and as a result are subject to the generally applicable deduction limits.
Under the new law, for years beginning after 2001, elective deferral contributions will not be subject to these limits.
However, The Principal(R) encourages both plan sponsors and their employees to look carefully before leaping into the world of Roth elective deferral contributions.
This problem is in particular noted with 401(k) plans in which the employees are 100% vested in elective deferral contributions but cannot access the funds without terminating employment.
If these requirements are met, the plan is deemed to satisfy the nondiscrimination test for the employee's elective deferral contributions (i.
Due to the limitations placed on elective deferral contributions to a Sec.