SPC

SPC Help Center

- Can I start my own plan?
- Do I have the right type of income?
- What are the annual limits? 

Annual limits change every year, but some things remain the same for retirement plans. Have questions? SPC is here to help. We designed our Help Center to be a quick reference guide for the most frequently asked questions from Participants, Plan Sponsors, Advisors & CPAs. SPC is your independent resource.

Plan Sponsor Calendar of Events

(For Calendar-Year Plans ending Dec 31 - Most Plans are Calendar-Year Plans)

End of Year Deadlines:

Before Oct 31st - (Terminating SIMPLE Plans Only) If you plan to terminate your SIMPLE IRA plan on Dec 31st of the current year, the termination notice needs to be sent to participants (corporate minutes signed and participant notices sent) before Oct 31st to provide at least 60 days notice to participants regarding the plan termination. 

Before Oct 31st - (Starting a new Jan 1 Plan) If you plan on starting a new 401k Plan to be effective for Jan 1 of the next year, Oct is generally considered the last month to ensure a Jan 1 start for deferrals. Recordkeepers generally require 45 - 60 days to build participant accounts to be ready to receive contributions for the Jan 1 payroll.

Before Nov 30th - Annual Notices need to be sent to all participants (Fee Disclosure, Safe Harbor Notice, Plan Annual Notice - Summary of Material Modifications)

Before Nov 30th - (Terminating Plans Only) If you plan to terminate your qualified plan on Dec 31st of the current year, the termination notice needs to be sent to participants (amendment signed and participant notices created) before Nov 30th to provide at least 30 days notice to participants regarding the plan termination. 

Dec 1st - 15th - If your plan has Semi-Annual Entry or Quarterly Entry, any participants eligible to enter the plan on Jan 1, should receive their Enrollment Packet (Plan Highlights, Summary Plan Description, Auto-Enroll Notice, Enrollment Instructions). Stewardship Wealth Advisors will create this packet for you.

This is also a good time to remind participants about any deferral auto-escalations on Jan 1 or remind them that they are allowed to increase or decrease their deferral amounts on Jan 1. 

Dec 31st - 401k & SIMPLE IRA Deferral Deadline for W2 Employees (to ensure that the deferral amounts are listed on each employee's W2 for the year).


Jan - March Deadlines:

Jan 1 - New Participant Enrollment (Monthly Entry, Quarterly Entry, Semi-Annual Entry)

Jan 1 - Plan Annual Compliance Data Collection begins. Requests from your Third Party Administrator for W2/W3 and Employee Census Data will be sent. Annual Account Statements from the Recordkeeper or Advisor Brokerage Accounts will be requested. Total Participant Accounts with Balances will be counted to determine whether a Plan Audit is required (over 100 participant with a balance).

Jan 31st - W2s are due to employees. As the Plan Sponsor, you should also receive your W3 at this time. Please retain copies of these as your Third Party Administrator may require copies to complete your annual administration. Your plan Recordkeeper may also request an updated Employee Census at the beginning of each plan year.

Feb 15th - Most Third Party Administrators (TPAs) will request that all data collection is completed by February 15th of each year to allow for 30 days to complete their work before the March 15th Testing Deadline. Don't be surprised to receive multiple auto-generated emails requesting this information to be sent before Feb 15th.

March 15th - Testing Deadline for 401k Plans. This is the date for non-safe harbor 401k plans to complete their annual testing, issue corrective distributions/refunds due to failed compliance tests, and notify plan sponsors of testing results (non-safe harbor plans).

March 15th - Corporate Tax Filing Deadline (if not filing an extension until Sept 15th) 

April - June Deadlines:

April 1st - New Participant Enrollment (Monthly Entry or Quarterly Entry) 

April 15th - Individual Tax Filing Deadline - Also Retro Deferral Deadline for Sole-Prop SoloKs (A SoloK plan can be started for an owner-only sole proprietor business for the prior year until April 15th, but the 401k deferral must be funded before the individual tax filing date - NOT counting extensions). 

May 1st - Most employees who are working full-time will be close to working 1,000 hours by May 1st. 1,000 hours worked in most plans is the threshold to freeze a plan before employees earn their benefits for the year (Profit Sharing, Cash Balance, Vesting Service, etc). Plan Changes or Freeze Amendments need to be prepped to provide a 30 day notice for participants before they reach 1,000 hours during the year. May 1 is generally considered the date by which these amendments need to be created.

June 15th - 30 day notice for the Annual 5500 Filing for most 401k, Profit Sharing, Cash Balance & Defined Benefit Plans. This is also the date where 5558 (5500 & 5330 extension forms) would be prepped and filed to alert the IRS that the 5500 has been extended until Oct 15th.

July - Sept Deadlines:

July 1st - New Participant Enrollment (Monthly Entry, Quarterly Entry or Semi-Annual Entry)

July 15th - 5500 Filing Deadline (if not extended)

July 15th - Generally considered the final deadline to adopt a retro plan (prior year plan) - Profit Sharing, Cash Balance, SEP, Profit Sharing portion of a SoloK. Some of these plans can be designed and implemented quickly, but always assume a 30-45 day timeline to adopt a new retro plan. The compliance needs to be completed, accounts opened and funded *before* the company files its prior year taxes. If your CPA is looking for additional tax deductions for the prior year - now is the time to firm up your strategy for the prior year before everything is finalized.

Aug 15th - All calculations for the prior year SEP, Safe Harbor, Profit Sharing, Cash Balance Plan or Defined Benefit Plan should be completed by now. Aug 15th represents the 30 day final window to fund these contributions before the Sept 15th deadline.

Aug 15th - Along with retro plans for the prior year, Aug 15th also represents the deadline to start a new safe harbor 401k plan with a recordkeeper before the Oct 1st Safe Harbor Deadline. Recordkeepers generally require at least 45 days to build the participant accounts and distribute all of the notices to be ready to accept contributions on Oct 1st.

Sept 15th - FUNDING DEADLINE and corporate tax filing deadline (if the company taxes have been filed earlier in the year, the retirement plan funding needs to occur before the tax filing date to receive your tax deductions for the year). As you can imagine, this is a busy time of year for CPAs, plan sponsors, third party administrators and plan consultants. All prior year contributions need to be submitted before this date to avoid any excise taxes and IRS penalties.

**It is important to remember that even if your personal tax filing date is Oct 15th - for qualified plan purposes, Sept 15th is the final funding date for retirement plans to avoid excise taxes and penalties.

Oct - Dec Deadlines:

Oct 1st - New Participant Enrollment (Monthly Entry or Quarterly Entry) 

Oct 1st - Safe Harbor Deadline for new plans (or to claim Safe Harbor for your existing 401k plan). The IRS mandates that the SH provision is in force for at least 3 months of the plan year. This means that the SH provision must be adopted and in effect for the Oct 1st payroll. 

Oct 15th - 5500 Extension Filing Deadline & Audit Report Deadline. Most Audited plans will be extended each year. Failure to file your 5500 or Audit Report can incur serious penalties and excise taxes. 

Nov 1st - Most third party administrators will begin immediately prepping your Safe Harbor Notices and annual participant disclosures after filing your prior year 5500. As a plan sponsor, you should start receiving these notices to be distributed to your employees & participants before Nov 30th. 

Before Nov 30th - Annual Notices need to be sent to all participants (Fee Disclosure, Safe Harbor Notice, Plan Annual Notice - Summary of Material Modifications)

Dec 1st - 15th - If your plan has Semi-Annual Entry or Quarterly Entry, any participants eligible to enter the plan on Jan 1, should receive their Enrollment Packet (Plan Highlights, Summary Plan Description, Auto-Enroll Notice, Enrollment Instructions) Stewardship Wealth Advisors will create this packet for you.

This is also a good time to remind participants about any deferral auto-escalations on Jan 1 or remind them that they are allowed to increase or decrease their deferral amounts on Jan 1.

Dec 31st - 401k & SIMPLE IRA Deferral Deadline for W2 Employees (to ensure that the deferral amounts are listed on each employee's W2 for the year.

Safe Harbor Plans - To change the safe harbor type for the next year - 30 days before the end of the plan year to be included in the participant disclosures & safe harbor notice for the next year. 

Adding Safe Harbor - If you have a non-safe harbor 401k plan and would like to add a 3% Non-Elective Safe Harbor provision, you can add this at anytime during the plan year and even after the plan year as a "retro safe harbor option". Contact us for details.

Terminating a SIMPLE IRA Plan - You can terminate a SIMPLE IRA Plan anytime before Oct 1st of each year with a 60 day notice to your participants. In order to terminate a SIMPLE, you need to immediately transition into an approved 401k Plan as a replacement (generally a Safe Harbor 401k plan).

Plan Freezes - In order to freeze an existing defined benefit plan, cash balance plan, profit sharing plan or 401k plan, a 30 day notice needs to be sent to all participants. If your participants have already worked more than 1,000 hours during the year, they may be entitled to the full annual benefit in the plan. They will always be entitled to any benefits they have already earned during the year before the freeze amendment is effective. 

Changing Eligibility - At any time, you may reduce the time for employees to become eligible for your plan (e.g. - reducing from 1 year of service to 6 months of service). You can also reduce the hours or elapsed time requirements at any time (e.g. - 1,000 hours to 500 hours to become eligible). Rule of thumb - if it makes it easier for your employees to be eligible for the plan, you can easily make the change. If it makes it harder for employees to enter the plan - it is more difficult to change.

Changing Vesting - Similar to changing eligibility, you can reduce the vesting schedule at any time to allow employees to become fully vested on a reduced schedule. (e.g. - 6 year graded vesting to 3 year vesting). Should you wish to increase the vesting schedule to lengthen the time before a participant becomes vested, the new lengthened schedule would only apply to new participants or new hires and may require additional testing/compliance costs.

Adjusting Cash Balance / Defined Benefit Formula - Most CB or DB plans include a 1,000 hour provision. Much like freezing a plan, some benefit reductions can be made before the 1,000 hour threshold is reached. After the participant reaches 1,000 hours worked during the year (or by whatever equivalency method is used by the plan), generally the only formula adjustments you could make to the the plan would be to increase the benefit formula for the participant(s). 

SPC Help Center Topics

SPC always wants to make things easy for you & your team. No compliance-speak - just real answers & insight. We will continue to update the Help Center as clients ask us questions or as government regulations change.

401k Deferral (Under 50 Yrs Old) - $23,000
401k Deferral (Over 50 Yrs Old) - $30,500 (with catch-up)

401k w/Profit Sharing (Under 50 Yrs Old) - $69,000
401k w/Profit Sharing (Over 50 Yrs Old) - $76,500

SEP IRA - Lesser of $69,000 or 25% of pay (20% for Sole-Prop)

HCE Threshold - $155,000 or 5%+ Ownership or Immediate Family of Owner
Key Employee - $220,000 (for top heavy purposes)

401k Deferral (Under 50 Yrs Old) - $23,500
401k Deferral (Over 50 Yrs Old) - $31,000 (with catch-up)

401k w/Profit Sharing (Under 50 Yrs Old) - $70,000
401k w/Profit Sharing (Over 50 Yrs Old) - $77,500

SEP IRA - Lesser of $70,000 or 25% of pay (20% for Sole-Prop)

HCE Threshold - $160,000 or 5%+ Ownership or Immediate Family of Owner
Key Employee - $230,000 (for top heavy purposes)

SECURE 2.0 is a follow-up to the Original SECURE & CARES Acts of 2019/2020. It was signed into law on Dec 29, 2022 and could be the largest change to the retirement plan industry in the last 20 years. This bill was primarily focused on increasing participation & savings rates in Employer-Sponsored Retirement Plans. There are a lot of great provisions - there are also a lot of onerous provisions.

As you can imagine, it is a very long piece of legislation. Below are a few of the highlights:

- Auto-Enroll Mandate for businesses with over 10 Employees & have been in business for 3+ years.
- Employer Contributions can be made as ROTH
- Student Loan Payments can be used to determine Employer Match
- High Earners will need to contribute 401k Catch-up as ROTH
- Emergency Savings Accounts inside retirement plans
- Easier Hardship Distribution Rules & Easier Self-Correction Rules
- Increased limit for Terminated Participant Force-Outs

SPC can perform a SECURE 2.0 Plan Review to see what provisions need to be added to your existing plan and whether it might be advantageous to include some of the optional provisions moving forward. Contact us today for an individual consultation to see how SECURE 2.0 will affect your plan.

2024 Deadlines for starting a new plan - Act Now

401k Plan with Employees - Safe Harbor Deadline - Oct 1, 2024
Profit Sharing Plan - Before the company files its taxes for 2024 or Sept 15, 2025
SEP - Before the company files its taxes for 2024 or Sept 15, 2025
Cash Balance Plans - Before the company files its taxes for 2024 or Sept 15, 2025
Sole Prop SoloK - Before April 15, 2025

2025 Deadlines - Start Planning Now

401k Plan with Employees - Safe Harbor Deadline - Before Oct 1, 2025
Profit Sharing Plan - Before the company files its taxes for 2025 or Sept 15, 2026
SEP - Before the company files its taxes for 2025 or Sept 15, 2026
Cash Balance Plans - Before the company files its taxes for 2025 or Sept 15, 2026
Sole Prop SoloK - Before 4/15/26

Controlled Group - If you own 80% or more of multiple businesses individually, or as part of the same ownership group, you could be a controlled group. This means that a retirement plan covering one of the companies must cover all of the companies. This rule is to prevent owners from separating themselves for personal benefit without providing benefits to their employees.

Example: Husband & Wife own a trucking company with drivers and also own a warehouse company with office staff. They are 100% owners of both businesses. Even if the businesses don't work together, they would most likely be a controlled group and need to cover both businesses under one plan or "mirrored" separate plans.

Affiliated Service Group - Generally reserved for licensed professionals (Drs, attorneys, architects, etc). With any common ownership of businesses, if a "significant portion" of your income comes from a company you have an active ownership in, you might be an affiliated service group and your plan would need to cover both businesses.

Example: Doctor A has a minority ownership stake in Clinic B. Doctor A invoices Clinic B for his work at the clinic through his personal medical business. This could be an Affiliated Service Group because they are both earning money from the same encounter/client/task.

If you are you a realtor or other 1099 independent contractor, there are plans for you as a Sole Proprietor. SoloKs are a fantastic option for owner-only businesses without employees. Other types of plans are also available if your 1099 is subject to SE Taxes (earned income and not from royalties, investment dividends, or other passive income).

Tip: Always ask yourself, are you "working" for your 1099 or does your 1099 come passively from prior work/prior investment/ownership interests.

Starting in 2025 - Almost all 401k plans require Auto-Enroll provisions with a permissible withdrawal feature.

Exclusions:

- If your business is less than 3 years old, you can wait until your 4th year
- If you "regularly employ" fewer than 10 employees, you do not have to add auto-enroll

What is auto-enroll? The US Government wanted to spur more savings for participants, so they mandated Auto-Enroll for new 401k and 403b plans in 2025. When a participant becomes eligible for the plan, if they do not choose a deferral $ or % for themselves, the Plan Sponsor (company) will automatically enroll them into the 401k at a minimum of 3% of their annual pay and gradually increase each participant each year until they reach 10% of pay. Most plans start at 10% to encourage participants to make their own selection.

Each participant has a choice to defer an amount they wish, up to the annual limit, but this provision catches every participant who did not make a positive election for themselves ($0 annually is an acceptable amount for a participant to select). This would increase savings rates for employees. 

There are several options for auto-enroll and several potential issues. Contact SPC today to learn more about auto-enroll provisions and how it might affect your staff and plan overall.

The government says if a Plan Sponsor (company) offers a minimum level of benefit to their staff, they can avoid most annual testing rules. This is called "Safe Harbor". A safe harbor 401k plan avoids the ADP/ACP annual testing as well as Top Heavy and some other potential discrimination rules.

Safe Harbor comes in many flavors:

- 3% Non-Elective - everyone who is eligible for the plan will automatically receive 3% of their annual pay as an employer contribution. This could also be 4%, 5%, or even 6% of annual pay.

- Safe Harbor Match  - several different match formulas. When participants become eligible, they would receive a match up to 3.5% or up to 4% of their pay as a company match, depending on the formula.

Most Safe Harbor formulas are 100% immediately vested (meaning the participant would take the money with them if they left the company), but there are several versions which can include a 2 year vesting period for companies with higher turnover.

Payroll-Taxable Income is the key. Earned Income is the technical term. For retirement plans, we can only use income which is subject to both Income Tax & Payroll Tax (or self-employment tax). What does this mean in plain English?

- Sole Prop - Net Schedule C/Net Schedule SE Income
- S-Corp - Box 1 or Box 5 of W2 Income (S-Corp K1 income does not count)
- C-Corp - Box 1 or Box 5 of W2 Income (Dividend income does not count)
- Partnerships - Box 14a on the Partnership K1 (Passive income does not count)
- 1099 Contractor Income - Net Schedule C/Net Schedule SE

*LLCs are not a taxable entity, so when considering a retirement plan for an LLC, you might confirm your taxable entity type with your accountant or CPA. Every LLC will generally file as one of the 4 main enitity types listed above. 

There are multiple types of Profit Sharing Formulas, but the most common types are Pro-Rata and New Comparability. What's the difference?

ProRata - Everyone who is eligible to receive the Profit Sharing will receive the same % of pay. (The same as a SEP IRA). If the owner wishes to give themselves 10% of pay as profit sharing, all of the eligible employees will also receive 10% of their own pay as a company profit sharing contribution. This requires very little compliance testing, but is very inefficient when trying to maximize benefits for ownership.

New Comparability - Each eligible participant is in their own class. Owners can receive outsized benefits compared to the staff - or - individual employees can be called out for specific profit sharing amounts. This obviously requires more compliance testing, but is the preferred method for customized plans to single out individuals, groups, owners, or company locations for varied amounts of benefits.

How do you know how which formula your plan adopted? It's in your plan document. SPC is here to help if you would like our team to review your document for recommendations to make your plan more effective for your goals.

Yes. All 401k Plans can add a Discretionary Match provision to their plan document. The most important item to consider is how to write the amendment.

A Fixed Match would actually write a fixed formula into the document, which could be dangerous for the company if they wish to change the match formula from year to year. A Safe Harbor Match is a version of a fixed match (the match formula is included in all participant materials). With a Fixed Match however, the company could add up to a 6 year vesting schedule to help with employee retention.

A Discretionary Match might be a better option if company flexibility is key. A discretionary match can be written in such a way that the actual formula is determined after the end of the year once the final year-end company financials are completed. Then, working with a plan consultant or TPA, the company can determine how much of a match they would like to offer for the prior year. Are there other rules to consider? Yes. However, Adam, our Managing Director, likes to call this a "surgical option" for custom plans where the company would like to target a specific tax deductible amount - or - wait until they are able to confirm the total plan participation before setting a formula for the year. SPC specializes in this type of custom plan design to maximize your flexibility.

What if someone is terminated or leaves the company during the year? If the company offers a discretionary match or profit sharing for the year, would we have to offer this additional benefit to employees who are no longer actively employed? Perhaps not. 

A Last Day Rule for discretionary matches and profit sharing stipulates that anyone not employed when the plan year calendar rolls over (generally Dec 31 to Jan 1), would not share in the additional benefit. This allows the company to reward only those employees who are still employed with the company. Obviously, there are rules around this, but in most cases for 401k Profit Sharing plans, it could be a valuable provision to add to your plan. 

© Copyright 2024 Strategic Plan Consultants LLC  - All Rights Reserved
Strategic Plan Consultants does not provide investment, legal, or tax advice.

Legal Disclaimer    -    Privacy Statement