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Need Some Deductions for 2011?
Don't overlook these!
Updated for 2011
Qualified Plans
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Discrimination Tests for Qualified Plans
Contributions or benefits under the plan must not discriminate in favor of highly compensated employees under a qualified plan.
For example, you cannot allow highly compensated employees to have a higher contribution rate than other employees.
Highly compensated employees:
A highly compensated an individual who:
- Owned more than 5% of the interest in your business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or
- For the preceding year, received compensation from you of more than $110,000 (if the preceding year is 2009, 2010, or 2011) and, if you so choose, was in the top 20% of employees when ranked by compensation.
The law provides tests to detect discrimination in a plan such as:
- Actual deferral percentage test (ADP test) (IRC section 401(k)(3)).
- Actual contributions percentage test (ACP test) (IRC section (401(m)(2))
The ADP and ACP tests do not apply to safe harbor 401((k) plans.
Excise tax penalty on excess contributions:
If these show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. The tax is reported on Form 5330.
The tax for the year is 10% of the excess contributions for the plan year ending in your tax year.
Excess contributions are:
- Elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test.
Next:
Qualified Plans: Top-Heavy Plan Requirements
Related Links
- What Are Qualified Plans?
- Deducting Plan Contributions
- Who Can Set Up a Qualified Plan
- Professional Assistance
- Qualification Rules for Qualified Plans
- Qualified Plan Participation Rules
- Restrictions on Conditions of Participation in Qualified Plan
- Minimum Vesting Standards for Qualified Plans
- Two Kinds of Qualified Plans
- Defined Contribution Plan
- Funding Requirement for Defined Contribution Plans
- Maximum Deductible Percentage for Contributions
- Defined Benefit Plan
- Funding Requirement for Defined Benefit Plans
- Annual Benefit Limit Under a Defined Benefit Plan
- 401(k) Plans
- SIMPLE 401(k) Plans
- Matching Contributions
- Nonelective Contributions
- Limit on Elective Deferrals
- Catch-Up Contributions for a 401(k) Plan
- Employee Compensation Limit
- Form W-2 Reporting for Elective Deferrals
- Automatic Enrollment in a 401(k) Plan
- Limits on Contributions and Benefits
- Contribution Restriction for Self-Employed Persons
- Figuring a Self-Employed Person's Deductible Contributions
- Special Computation for Self-Employed Persons
- Timing Deductible Contributions
- Promissory Notes
- Self-Employed Persons
- Overall Annual Contribution Limit
- Qualified Roth Contribution Program
- Early Distributions From 401(k) Plans
- Qualified Reservist Early Distributions
- Reminders
- Master or Prototype Plans
- Individually Designed Qualified Plan
- Setting Up a Qualified Plan
- Credit for Small Employer Pension Plan Startup Costs
- Credit for Qualified Retirement Savings Contributions
- Funding Requirements for Defined Benefit Plans and Money-Purchase Plans
- Reporting Requirements for Qualified Plans
- Pension Benefits Guarantee Corporation
- Avoiding Inadequate Funding Problems For Defined Benefit Plans
- Bonding Requirement for Qualified Plans
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