401(k) March 15th Deadline

Company Retirement Plans
Written By gbfadmin
401k march 15 deadline

401k march 15 deadline

For all companies that sponsor a 401(k) plan, the March 15th deadline is quickly approaching. March 15th is deadline for processing corrective distributions for failed actual deferred percentage (ADP) test. Failure to meet the deadline will result in a 10% excise penalty for any refund amounts that were due to the Highly Compensated Employees (HCE).

HCE’s are defined as an employee that is 5%+ owner or $115,000+ in annual compensation. The ADP test compares what the HCE’s deferred into the 401(k) versus what the Non-Highly Compensated Employees Deferred (NHCE). If there is too large of a gap between the average of the HCE’s versus the average of the NHCE, the plan is required to refund contributions to the HCE’s until the contribution level can pass testing. The typical rule of thumb is the HCE’s cannot defer more than 2% of the average of the NHCE’s to pass testing but this amount will vary based on the actual testing results.

If you are a safe harbor plan, you do not have to worry about the March 15th deadline because safe harbor plans are automatically deemed to pass the ADP test regardless of how much the HCE’s defer into plan. This makes safe harbor plans a very effective plan design for owners that are looking to max out their 401(k) deferrals in a given plan year. 

Michael Ruger

Michael Ruger

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Related Posts
Leaving Your Job? What Should You Do With Your 401(k)?
Leaving Your Job? What Should You Do With Your 401(k)?

When you separate service from an employer, you have to make decisions with regard to your 401K plan.  It’s important to understand the pros and cons of each option while also understanding that the optimal solution often varies from person to person based on their financial situation and objectives.  The four primary options are:

1)      Leave it in the existing 401(k) plan

2)      Rollover to an IRA

3)      Rollover to your new employer’s 401(k) plan

4)      Cash Distribution

Focusing On Buying Dividend Paying Stocks Is A Mistake
Focusing On Buying Dividend Paying Stocks Is A Mistake

Picking the right stocks to invest in is not an easy process but all too often I see retail investors make the mistake of narrowing their investment research to just stocks that pay dividends.   This is a common mistake that investors make and, in this article, we are going to cover the total return approach versus the dividend payor approach to investing. 

What Is an ETF & Why Have They Surpassed Mutual Funds in Popularity?
What Is an ETF & Why Have They Surpassed Mutual Funds in Popularity?

There is a sea change happening in the investment industry where the inflows into ETF’s are rapidly outpacing the inflows into mutual funds.  When comparing ETFs to mutual funds, ETFs sometimes offer more tax efficiency, trade flexibility, a wider array of investment strategies, and in certain cases lower trading costs and expense ratios which has led to their rise in popularity among investors.  But there are also some risks associated with ETFs that not all investors are aware of……..

When Should High-Income Earners Max Out Their Roth 401(k) Instead of Pre-tax 401(k)?
When Should High-Income Earners Max Out Their Roth 401(k) Instead of Pre-tax 401(k)?

While pre-tax contributions are typically the 401(k) contribution of choice for most high-income earners, there are a few situations where individuals with big incomes should make their deferrals contribution all in Roth dollars and forgo the immediate tax deduction.

How Much Should I Contribute to Retirement?
How Much Should I Contribute to Retirement?

A question I’m sure to address during employee retirement presentations is, “How Much Should I be Contributing?”.   In this article, I will address some of the variables at play when coming up with your number and provide detail as to why two answers you will find searching the internet are so common.

Federal Disaster Area Penalty-Free IRA & 401(k) Distribution and Loan Options   
Federal Disaster Area Penalty-Free IRA & 401(k) Distribution and Loan Options   

Individuals who experience a hurricane, flood, wildfire, earthquake, or other type of natural disaster may be eligible to request a Qualified Disaster Recovery Distribution or loan from their 401(k) or IRA to assist financially with the recovery process. The passing of the Secure Act 2.0 opened up new distribution and loan options for individuals whose primary residence is in an area that has been officially declared a “Federal Disaster” area.

Starting in 2024, 401(k) Plan Will Be Required to Cover Part-time Employees   
Starting in 2024, 401(k) Plan Will Be Required to Cover Part-time Employees   

In the past, companies have been allowed to limit access to their 401(k) plan to just full-time employees but that is about to change starting in 2024. With the passing of the Secure Act, beginning in 2024, companies that sponsor 401(K) plans will be required to allow part-time employees to participate in their qualified retirement plans.

Fewer 401(k) Plans Will Require A 5500 Audit Starting in 2023
Fewer 401(k) Plans Will Require A 5500 Audit Starting in 2023

401(K) plans with over 100 eligible plan participants are considered “large plans” in the eyes of DOL and require an audit to be completed each year with the filing of their 5500. These audits can be costly, often ranging from $8,000 - $30,000 per year.

Starting in 2023, there is very good news for an estimated 20,000 401(k) plans that were previously subject to the 5500 audit requirement. Due to a recent change in the way that the DOL counts the number of plan participants for purposes of assessing a large plan filer status, many plans that were previously subject to a 401(k) audit, will no longer require a 5500 audit for plan year 2023 and beyond.

3 New Startup 401(k) Tax Credits
3 New Startup 401(k) Tax Credits

When Congress passed the Secure Act 2.0 in December 2022, they introduced new tax credits and enhanced old tax credits for startup 401(k) plans for plan years 2023 and beyond. There are now 3 different tax credits that are available, all in the same year, for startup 401(k) plans that now only help companies to subsidize the cost of sponsoring a retirement plan but also to offset employer contributions made to the employee to enhance a company’s overall benefits package.

Mandatory Roth Catch-up Contributions for High Wage Earners - Secure Act 2.0
Mandatory Roth Catch-up Contributions for High Wage Earners - Secure Act 2.0

Starting in 2026, individuals that make over $145,000 in wages will no longer be able to make pre-tax catch-up contributions to their employer-sponsored retirement plan. Instead, they will be forced to make catch-up contributions in Roth dollars which means that they will no longer receive a tax deduction for those contributions.

Secure Act 2.0:  Roth Simple IRA Contributions Beginning in 2023
Secure Act 2.0:  Roth Simple IRA Contributions Beginning in 2023

With the passage of the Secure Act 2.0, for the first time ever, starting in 2023, taxpayers will be allowed to make ROTH contributions to Simple IRAs. Prior to 2023, only pre-tax contributions were allowed to be made to Simple IRA plans.

Self-Employment Income In Retirement? Use a Solo(k) Plan To Build Wealth
Self-Employment Income In Retirement? Use a Solo(k) Plan To Build Wealth

It’s becoming more common for retirees to take on small self-employment gigs in retirement to generate some additional income and to stay mentally active and engaged. But, it should not be overlooked that this is a tremendous wealth-building opportunity if you know the right strategies. There are many, but in this article, we will focus on the “Solo(k) strategy

401(K) Cash Distributions: Understanding The Taxes & Penalties
401(K) Cash Distributions: Understanding The Taxes & Penalties

When an employee unexpectedly loses their job and needs access to cash to continue to pay their bills, it’s not uncommon for them to elect a cash distribution from their 401(K) account. Still, they may regret that decision when the tax bill shows up the following year and then they owe thousands of dollars to the IRS in taxes and penalties that they don’t have.

401K Loans: Pros vs Cons
401K Loans: Pros vs Cons

There are a number of pros and cons associated with taking a loan from your 401K plan. There are definitely situations where taking a 401(k) loan makes sense but there are also number of situations where it should be avoided.

Can You Contribute To An IRA & 401(k) In The Same Year?
Can You Contribute To An IRA & 401(k) In The Same Year?

There are income limits that can prevent you from taking a tax deduction for contributions to a Traditional IRA if you or your spouse are covered by a 401(k) but even if you can’t deduct the contribution to the IRA, there are tax strategies that you should consider

Should You Make Pre-tax or Roth 401(k) Contributions?
Should You Make Pre-tax or Roth 401(k) Contributions?

When you become eligible to participate in your employer’s 401(k), 403(b), or 457 plan, you will have to decide what type of contributions that you want to make to the plan.

Cash Balance Plans: $100K to $300K in Pre-tax Contributions
Cash Balance Plans: $100K to $300K in Pre-tax Contributions

DB/DC combo plans can allow business owners to contribute $100,000 to $300,000 pre-tax EACH YEAR which can save them tens of thousands of dollars in taxes.

Coronavirus Relief: $100K 401(k) Loans & Penalty Free Distributions
Coronavirus Relief: $100K 401(k) Loans & Penalty Free Distributions

With the passing of the CARES Act, Congress made new distribution and loan options available within 401(k) plans, IRA’s, and other types of employer sponsored plans.

$5,000 Penalty Free Distribution From An IRA or 401(k) After The Birth Of A Child or Adoption
$5,000 Penalty Free Distribution From An IRA or 401(k) After The Birth Of A Child or Adoption

New parents have even more to be excited about in 2020. On December 19, 2019, Congress passed the SECURE Act, which now allows parents to withdraw up to $5,000 out of their IRA’s or 401(k) plans following the birth of their child

Percentage of Pay vs Flat Dollar Amount
Percentage of Pay vs Flat Dollar Amount

Enrolling in a company retirement plan is usually the first step employees take to join the plan and it is important that the enrollment process be straight forward. There should also be a contact, i.e. an advisor (wink wink), who can guide the employees through the process if needed. Even with the most efficient enrollment process, there is a lot of

What Happens To My Pension If The Company Goes Bankrupt?
What Happens To My Pension If The Company Goes Bankrupt?

Given the downward spiral that GE has been in over the past year, we have received the same question over and over again from a number of GE employees and retirees: “If GE goes bankrupt, what happens to my pension?” While it's anyone’s guess what the future holds for GE, this is an important question that any employee with a pension should

Volatility, Market Timing, and Long-Term Investing
Volatility, Market Timing, and Long-Term Investing

For many savers, the objective of a retirement account is to accumulate assets while you are working and use those assets to pay for your expenses during retirement. While you are in the accumulation phase, assets are usually invested and hopefully earn a sufficient rate of return to meet your retirement goal. For the majority,

Target Date Funds: A Public Service Announcement
Target Date Funds: A Public Service Announcement

Before getting into the main objective of this article, let me briefly explain a Target Date Fund. Investopedia defines a target date fund as “a fund offered by an investment company that seeks to grow assets over a specified period of time for a targeted goal”. The specified period of time is typically the period until the date you “target” for retirement

Big Changes For 401(k) Hardship Distributions
Big Changes For 401(k) Hardship Distributions

While it probably seems odd that there is a connection between the government passing a budget and your 401(k) plan, this year there was. On February 9, 2018, the Bipartisan Budget Act of 2018 was passed into law which ended the government shutdown by raising the debt ceiling for the next two years. However, also buried in the new law were

403(b) Lawsuits Continue To Spread To More Colleges
403(b) Lawsuits Continue To Spread To More Colleges

In the last 3 years, the number of lawsuits filed against colleges for excessive fees and compliance issues related to their 403(b) plans has increased exponentially. Here is a list of just some of the colleges that have had lawsuit brought against them by their 403(b) plan participants:

How Does A Simple IRA Plan Work?
How Does A Simple IRA Plan Work?

Not every company with employees should have a 401(k) plan. In many cases, a Simple IRA plan may be the best fit for a small business. These plans carry the following benefits

How Does A SEP IRA Work?
How Does A SEP IRA Work?

SEP stands for “Simplified Employee Pension”. The SEP IRA is one of the most common employer sponsored retirement plans used by sole proprietors and small businesses.

How Do Single(k) Plans Work?
How Do Single(k) Plans Work?

A Single(k) plan is an employer sponsored retirement plan for owner only entities, meaning you have no full-time employees. These owner only entities get the benefits of having a full fledge 401(k) plan without the large administrative costs associated with traditional 401(k) plans.

The Fiduciary Rule: Exposing Your 401(K) Advisor’s Secrets
The Fiduciary Rule: Exposing Your 401(K) Advisor’s Secrets

It’s here. On June 9, 2017, the long awaited Fiduciary Rule for 401(k) plans will arrive. What secrets does your 401(k) advisor have?

Strategies to Save for Retirement with No Company Retirement Plan
Strategies to Save for Retirement with No Company Retirement Plan

The question, “How much do I need to retire?” has become a concern across generations rather than something that only those approaching retirement focus on. We wrote the article, How Much Money Do I Need To Save To Retire?, to help individuals answer this question. This article is meant to help create a strategy to reach that number. More

gbfadmin
Previous

The Shift from Defined Benefit to Defined Contribution Plans
Next

Need to Know College Savings Strategies