Important Reminders for 2024

2024 401(k) Profit Sharing Plan Annual Limits

The 401(k) / Roth contribution limit is $23,000 plus $7,500 catch-up for employees age 50 and over.

The maximum compensation eligible for plan purposes, including calculation of employer or matching contributions is $345,000.

The maximum total contributions in a defined contribution plan is $69,000 per person.

For a full chart of limits, visit our Annual Dollar Limits page

Timing Rules

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.

Filing Requirements

Form 1099-Rs are required to be provided to participants who receive distributions from the plan by January 31st of the following year.

Form 5500 is required to be filed for qualified retirement plans by the end of the 7th month following the plan year end, or 9.5 months after year end if extended.

Other Forms may need to be filed for specific situations. ARS will advise when applicable.

Thoughts for Administration

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.

2023 Preliminary Testing

After the end of each year, ARS, Inc. performs 401(k) Discrimination Testing for retirement plans. For plans with a December 31, 2023 year end, we are now offering the option to run a preliminary 401(k) Discrimination Test before year end. Some reasons to have preliminary testing prepared are.

- more opportunity for tax planning

- awareness of potential testing failures early so action can be taken before year end

- assistance with the safe harbor election before year end..

For details on having preliminary testing prepared, contact your ARS Plan Administrator.  Note: if your plan is safe harbor, other than safe harbor maybe, preliminary testing is not needed for your plan.

2023 Contribution Projections

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.


Safe Harbor Plan Design Review

Safe harbor is a great concept that allows your plan to automatically pass the required annual 401(k)/401(m) Discrimination and Top Heavy Testing by making a 100% vested safe harbor contribution.  There are three types of safe harbor that can be utilized, which are listed below.   For Calendar year plans, we will be preparing the coming year's safe harbor notices in November.  If you would like to discuss the safe harbor feature, change or remove safe harbor for the coming year, please contact your ARS Plan Administrator before November 10th.   

Safe Harbor Non-Elective 3% Contribution - Under this option every eligible plan participant must receive an employer contribution equal to 3% of their compensation.  This contribution can be used in conjunction with a cross-tested profit sharing contribution.  This provision can now be added as late as 30 days BEFORE the END of the CURRENT plan year.

Safe Harbor Match Contribution - Under this option the employer will give an employer match contribution to a participant who deferes compensation as 401(k) contributions, or as Roth 401(k) contributions if applicable.  The employer contribution will match the participant's 401(k) contribution using a formula of at least: 100% match on the first 3% and 50% match on the next 2% of compensation deferred.



Timing to Deposit Employer 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. 

Minimum Required Distributions

Minimum Required Distributions (MRDs) must be taken by owners having more than 5% ownership, and by terminated/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 (if greater than a 5% owner), or the later of the participant turning age 72 or retiring/terminating employment (if not greater than a 5% owner).  Each subsequent distribution must be taken by December 31st.  Please contact your ARS Plan Administrator if you have a participant in your plan that is age 72 or over and terminated/retired.

ARS Filed Form 5558 if Needed

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.

Notice Requirements

Participants must be provided fee disclosures annually, within 14 months of when their prior notice was distributed. One participant fee disclosure will come from ARS, and one will come from your investment company. ARS will automatically send a new annual participant fee disclosure to you each year. You do not need to intiate it. Each investment company has a different process for their participant fee disclosure distribution. Call them to confirm their process.

Annual Notices relative to safe harbor provisions, automatic enrollment provisions and qualified default investment alternatives (QDIA) are required, if applicable to your retirement plan.