Important Reminders for 2024

Employee 401(k) and Roth contributions and loan payments must be deposited as soon as administratively feasible, or within 7 days after withholding from wages if the plan is small, or sooner if the plan is large.

Federal withholding of 20% is required on most cash distributions. If your company is responsible for this, the withholding must be deposited with the IRS by the 15th day of the following month in most cases.

Refunds to correct failed discrimination testing must be processed within 2.5 months following the close of the plan year, or the IRS charges a 10% penalty on the excess amount.

Employer contributions must be deposited before the filing due date of the company return, which is within 2.5 or 3.5 months of the company’s year end, depending on the entity type; or 8.5 months if extended for most entities.

Minimum Required Distributions must be taken by owners, having more than 5% ownership, and by terminated or retired employees who are over age 72. The first distribution must be taken by April 1 of the year following the participant turning age 72. Each subsequent distribution must be taken by December 31st.

Compensation is defined in the plan document. In most definitions, 401(k) contributions must be taken from all compensation, including bonuses and commissions. If you payroll runs any compensation separately and 401(k) is not taken from it, this may be incorrect. The plan document must specifically address compensation if it is addressed differently. Contact your ARS Plan Administrator to discuss compensation if you have any questions.

Employees should be provided a few items when they become eligible for the retirement plan: Summary Plan Description, any Summaries of Material Modification, applicable Annual Notices, applicable Fee Disclosure Notices, Enrollment Kit including fund information and Enrollment and Beneficiary Forms.

Exit Package - You may consider creating an "Exit Package" to provide to employees who terminate employment and have an account balance in the retirement plan. It would include a Distribution Form, Special Tax Notice, and possibly a Memo with return instructions. This would encourage distributions sooner rather than later so you won't have to worry about missing participants in the future.

In order to assist ARS in receiving timely payment of invoices, we will be adding a 1% per month interest charge to invoices outstanding for more than 30 days. To avoid this expense, please pay invoices immediately.

Two commonly adopted plan designs that are required to have employer contribution intentions decided before the plan year end are cross-tested and cash balance:

Cross-Tested Plan Design - Cross-testing is a method of allocating an employer profit sharing contribution where contribuions are allocated to employer defined classes.  It requires additional annual testing.  The contribution objective and initial testing should be prepared before year-end.

Cash Balance Plan - If 2023 has been a very successful year and you are looking for a new idea to shelter even more money than the defined contribution limit of $66,000, call your ARS Plan Administrator to discuss adding a Cash Balance Plan.  Depending on the company's demographics, company contributions can be as high as $265,000 for owners with contributions of 8-12% of compensation for employees total between both the 401(k) and Cash Balance Plan contributions.

Employer contributions (such as safe harbor, profit sharing, cash balance) must be deposited before the filing due date of the company return, including extension if applicable.  If your plan year end is December 31st and you have not filed the 2022 company return yet, the due date is September 15, 2023.  Thus, the due date for when employer contributions must be deposited into participants' accounts under the qualified retirement plan is also either September 15, 2023 or October 15, 2023, whichever date your company return is due.  There is not an extension of time beyond this date. 

If your retirement Plan's return/Form 5500 was not sent to you by ARS for electronis signature before the original due date, we automatically prepare a Form 5558, Application for Extension of Time, to exted the due date 2.5 months into the future.

There is nothing you need to do to initiate this action.  There is only one extension of time allowed.  There is no down side to extending, it is just for more time.

If your Plan's year end if December 31, 2020 the original Form 5500 due date is 7 months after year end, or July 31, 2021.  With the extension, the due date is an additional 2.5 months later, or October 15, 2021.