What is the difference between eligible and ineligible plans regarding 402(g) limit deferrals?

The distinction between eligible and ineligible plans concerning 402(g) limit deferrals is significant in the realm of retirement plan regulations. Eligible plans refer to those that meet specific criteria established by the Internal Revenue Code, which allows them to offer certain tax benefits and deferral opportunities. These eligible plans, such as 401(k) plans, are subject to the 402(g) limit, which places a cap on the amount an employee can defer from their salary into these plans each year.

This limit is important because it is designed to prevent excessive tax-advantaged deferrals and maintain fairness in the tax treatment of contributions. Thus, employees participating in eligible plans must adhere to the defined maximum deferral amounts established under IRS guidelines.

In contrast, ineligible plans do not fall under the same regulations or tax benefits provided to eligible plans, which can result in different treatment altogether regarding contribution limits. Therefore, it is correct to state that eligible plans are subject to the 402(g) limit deferrals, reinforcing the regulatory environment that governs retirement savings and contributions. This understanding is crucial for individuals involved in the administration and design of retirement plans to ensure compliance and proper contribution management.