What do I do if my 401k is top heavy?

If your plan is determined to be top-heavy you must contribute to non-key employees the lower of:

  1. 3% of total plan year compensation (even if employee is only participant for part of year)
  2. The highest percentage contributed to or for any key employee.

Are top heavy contributions fully vested?

Safe harbor contributions must always be fully vested but top heavy contributions can be subject to a vesting schedule. Salary deferral plans that provide a minimum matching contribution in conjunction with an automatic enrollment feature can also be exempt from the top heavy rules and ADP/ACP testing.

Can a safe harbor 401 K plan be top heavy?

According to the IRS, “A plan is top-heavy when the owners and most highly paid employees (‘key employees’) own more than 60% of the value of the plan assets.” A safe harbor 401(k) that has only elective deferrals and safe harbor matching contributions is generally exempt from being top-heavy.

Is my 401k top heavy?

A 401(k) plan is considered “top-heavy” when 60% or more of the assets in the plan are owned by “key employees.” A key employee is any of the following: Anyone who owns 5% or more of the company sponsoring the plan.

Are rollovers balances included in top heavy test?

Rollovers from related plans, however (such as when the employer terminates a plan and its employees roll over their balances to the new replacement plan), are included in the top-heavy testing.

Who gets top heavy minimum?

If the sum of all key employee balances exceeds 60% of the total balances in the entire plan as of the determination date, the plan is top heavy, potentially requiring the plan sponsor to make a minimum contribution for each non-key employee.

How do you fix top heavy failure?

To correct a top-heavy allocation failure, the employer must make a corrective contribution on behalf of the employee who received an insufficient allocation in an amount equal to the insufficiency, adjusted for earnings.

Does match count toward top heavy minimum?

If non-key employees receive matching, profit sharing, or qualified non-elective contributions (QNECs), note these count toward the top-heavy minimum contribution. Also note that top-heavy contributions can be subject to vesting.

Does my employer know my 401k balance?

Subject: Can employer see your 401k balance? Yes, whoever the plan administrator in your company can see your balance and your investment elections.

What is the maximum number of employees earning at least 5000?

What is the maximum number of employees (earning at least $5,000) that an employer can have in order to start a SIMPLE retirement plan? An employer can have a maximum of 100 employees earning at least $5,000 to be eligible for a SIMPLE retirement plan.

What is the 2021 maximum 401k contribution?


Employees can contribute up to $19,500 to their 401(k) plan for 2021 and $20,. Anyone age 50 or over is eligible for an additional catch-up contribution of $6, and 2022.

What is a super top-heavy plan?

Super Top-Heavy means a Top-Heavy Plan under which the present value of accrued benefits and account balances for all Key Employees exceeds 90% of the present value of accrued benefits and account balances for all Employees.

What happens if a SEP is deemed top heavy?

If your plan is top-heavy or deemed top-heavy, ensure that you’ve made all top-heavy minimum contributions. You’re required to make a minimum contribution for non-key employees whenever your SARSEP is top-heavy – when more than 60% of all employer contributions go to key employees.

What is a key employee for 401k?

1% owner test: An individual is a key employee if he or she owns more than 1% of the company sponsoring the plan and receives actual compensation of more than $150,000 for the year. This dollar limit is set and does not increase based on inflation the way that other limits do.

What is the exclusive benefit rule?

The exclusive benefit rule applies to all tax-sheltered retirement plans and is stated in IRC section 401(a) for employer plans and section 408(a) for IRA plans. This rule stipulates that all activities of the plan must be for the exclusive benefit of the plan beneficiaries.

What is the 415 test?

Third-party administrators perform the 415 limits test annually to determine whether or not participants are within the guidelines set forth by the code. If the guidelines are exceeded, the tax-qualified status of your plan may be jeopardized.

Which of the following is true about a qualified retirement that is top heavy?

Which of the following is TRUE about a qualified retirement that is “top heavy”? A plan is considered to be top heavy if more than 60% of plan assets are attributable to “key employees” as of the last day of the prior plan year.