When can we adopt a Safe Harbor Plan to utilize either a Safe Harbor non-elective contribution or a Safe Harbor matching contribution?
For existing plans, Safe Harbor plans are only adopted prior to the end of the current plan year but made effective for the beginning of the next plan year. A 30-day notice announcing the Safe Harbor provision must be provided each year to all plan participants prior to the beginning of the new plan year.
There are exceptions for newly established 401k plans and plans that are terminating. Your retirement plan provider will assist in implementing this plan design change.
When an employee terminates employment, are they able to keep their money in our plan?
In accordance with the IRS, if their balance is over $1,000, they are able to keep their money in the plan. If their balance is under $1,000, you may elect, with the assistance of your retirement provider, to cash them out or establish and transfer their account to an IRA.
Please keep in mind, if they are able to keep their funds in your plan, you are required to provide these former employees with all plan announcements concerning changes to the plan such as investments, plan conversion to another carrier or plan terminations.
Our plan offers participant loans and hardship distributions. Must a participant elect to take a loan prior to requesting a hardship distribution?
A participant should exercise the plan loan feature prior to requesting a hardship distribution. They must exhaust all financial avenues prior to requesting a hardship distribution.
We recommend reviewing your plan document and obtaining the required documentation when a hardship distribution is requested.
What is the difference between a Roth IRA and a Roth 401k?
A Roth IRA is a contribution to an account outside of your 401k plan. These accounts are typically established with a mutual fund company, brokerage account or another financial institution. Your contributions are made with post-tax dollars that grow tax deferred. There are limits as to the amount you may contribute. You should also consider your tax filing status and income to determine if you are eligible to make Roth IRA contributions. Distributions can be made at any time, subject to tax and penalty if not a ‘qualified distribution’.
A Roth 401k is a contribution made to your company’s retirement plan. It is paid to the plan through salary deferrals with post-tax dollars and grows tax deferred. Whether you direct a portion or all of your salary deferral to pre-tax dollars and/or post-tax dollars, the total limit remains as one dollar limit. Typically you are able to defer more in the Roth 401k than a Roth IRA and there are no income restrictions.
Distributions may be made only after: separation from service, death, disability, age 59-1/2, financial hardship and termination of the plan. Your retirement plan may not allow for some of these options.
Please consult your tax advisor to determine if you are eligible for the Roth IRA and consult your plan administrator if your plan allows for Roth 401k contributions. They should provide you with the most updated contributions limits and full disclosure of the features of these accounts.