How do catch-up contributions affect the 2025 maximum 401(k) contribution for a greater than 2% S Corporation shareholder employee age 50?
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For 2025, the maximum 401(k) contribution for a greater than 2% S Corporation shareholder employee age 50 is determined by the combination of the standard elective deferral limit, the catch-up contribution limit, and the overall annual additions limit for defined contribution plans. Here’s how catch-up contributions affect the maximum:
1. Elective Deferral Limit
For 2025, the standard elective deferral limit for 401(k) plans is $23,500. This is the maximum amount an employee can defer from their compensation into the 401(k) plan on a pre-tax or Roth basis, not counting catch-up contributions.
2. Catch-Up Contribution Limit
Because the employee is age 50 or older by the end of 2025, they are eligible to make additional "catch-up" contributions. For 2025, the catch-up contribution limit for 401(k) plans is $7,500.
- This means the employee can contribute up to $23,500 in regular elective deferrals, plus up to $7,500 in catch-up contributions, for a total of $31,000 in employee elective deferrals for 2025.
3. Overall Annual Additions Limit
The total contributions to a participant’s 401(k) account—including elective deferrals (both regular and catch-up), employer contributions (such as matching or profit-sharing), and any forfeitures—are subject to an overall annual additions limit. For 2025, this limit is $70,000 or 100% of the participant’s compensation, whichever is less.
- Importantly, catch-up contributions are not counted toward the $70,000 annual additions limit. The $70,000 limit applies to all contributions except catch-up contributions.
4. S Corporation Shareholder-Employee Considerations
A greater than 2% S Corporation shareholder is treated as an employee for 401(k) purposes. However, for purposes of determining compensation for contribution and deduction limits, only wages subject to FICA (i.e., W-2 wages) are considered compensation for 401(k) contributions. S corporation distributions or K-1 income are not considered compensation for 401(k) purposes.
5. Summary Table
6. Practical Example
If the S corporation shareholder-employee has at least $31,000 in W-2 compensation, they may defer up to $23,500 as a regular elective deferral and an additional $7,500 as a catch-up contribution, for a total of $31,000 in employee contributions. Employer contributions (such as profit-sharing) can be made in addition, up to the $70,000 annual additions limit (excluding catch-up contributions).
7. Key Points
- Catch-up contributions allow employees age 50 or older to contribute an additional $7,500 beyond the standard elective deferral limit.
- Catch-up contributions do not count toward the $70,000 annual additions limit.
- The total possible employee contribution for a 50+ participant is $31,000 for 2025.
- Employer contributions can be made in addition, up to the annual additions limit, provided total contributions (excluding catch-up) do not exceed $70,000 or 100% of compensation, whichever is less.
In summary: For a greater than 2% S Corporation shareholder employee age 50 or older, catch-up contributions increase the maximum 401(k) employee deferral from $23,500 to $31,000 for 2025. This is in addition to any employer contributions, which together (excluding catch-up) cannot exceed $70,000 or 100% of compensation.
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