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I would add one thing to C.B. Zeller's comment. To be deemed not top-heavy, the plan must consist solely of deferrals and safe harbor contribution AND the eligibility requirements for both deferrals and the safe harbor contribution must be the same.

@justanotheradmin for the win! @Mleech this is excellent advice in each of those posts.

Arggh. Going from memory only, (so don't trust me) the problem is less about the plan year (if you subscribe to the theory that the plan year can begin prior to company being formed - we've done it, and upon audit IRS never questioned it) than it is the short taxable year. With a short taxable year, the 404(a)(3) limit is based on compensation for that short period, and the compensation limit is prorated to calculate the deduction limit. Hopefully someone with a sharper memory can point out corrections to the above...

Similar Question - Non profit and For profit are clearly a control group (Non profit owns the for profit). Non- Profit has a large 403(b) plan with several hundred participants. For profit does not have a plan but would like one, small employer. There are a few HCE. The for profit cannot participate in the 403(b), but if they start their own 401(k) plan, I think testing would fail? They do not want a 401(k) plan to cover both entities, the non profit likes their 403(b). My understanding is 403(b) and 401(k) plans cannot be aggregated for testing, but if I'm wrong, could someone tell me? Am I thinking of this clearly? Issues: 401(k) with a 403(b) in the same testing group Different entity types in the same testing group Anyone have suggestions? My apologies if this would be better in a separate post of its own, it just seemed like a good place to ask about a similar scenario.

A new company's inception is 9/1/2025. There is one employee, the S-Corp owner. First tax year runs 9/1/2025 to 12/31/2025. Owner wants to adopt a calendar year profit sharing only plan for 2025, adding 401(k) for 1/1/2026. W2 comp for the period 9/1/2025 to 12/31/2025 will exceed $350,000. In the EOB it seems to indicate that it is possible for the effective date of the plan to begin prior to the inception date of the company. The EOB indicates that the IRS informally expressed this view at benefit conferences. It also notes that the employer can highlight the issue in the plan's determination letter request which seems to indicate that this wording has been in the EOB for a long time. Is this an acceptable approach? If not, and the plan year must be a short plan year (9/1/2025 to 12/31/2025) to run as a calendar year plan, are we then prorating the compensation limit to $116,667 (4/12ths) and in turn using that pro-rated limit to determine the max deductible amount of $29,167 (25% of prorated limit). Thank you very much.

A plan which consists solely of deferrals and safe harbor contributions is deemed not top-heavy. As soon as a dollar of profit sharing goes in to the plan - regardless of whether it goes to a key or non-key employee - the exemption is lost. Now the plan must provide the top heavy minimum. First check the highest allocation rate to any key employee, including deferrals. If that's greater than 3%, then the top heavy minimum is 3%. Then look at each of the non-key employees, and see how much they received in safe harbor matching contributions. If they deferred at least 3% (or 5% if a QACA), then their safe harbor match would be at least 3% and they would not need any additional employer contribution. Then you have to give a profit sharing allocation to each of the other non-key employees who were employed on the last day of the year. If they received any match at all, then the profit sharing just has to be enough to get them to 3% match + profit sharing. If there are any non-key HCEs that received profit sharing, then you have to test the profit sharing allocation for coverage and non-discrimination. All of this is assuming that it agrees with your plan document. This is what the plan documents that I use say, but you have to read yours to make sure it's the same. For example, yours might give the top heavy minimum to all employees as opposed to just non-keys, or it might not have the last day requirement, or something else entirely.

Okay Boomers, where's the love for Visicalc? https://www.historytools.org/software/visicalc-of-dan-bricklin-and-bob-frankston-guide

Thank you for clarifying

RBD is still 4-1-26 even if lump sum coming later in 2026.

Following up on this Same owner, turned 73 in 2025, terminated 12/31/2025 and will take distribution in 2026, when is the RMD due?

Those eligible participants who didn't defer, and didn't therefore receive the match, would be entitled to the Top Heavy Minimum. So have to ensure they get the PS allocation that meets the minimum.

I assume this is a DC plan? If so then 1.401(a)(9)-5 applies. So the default rule is that you use the entire balance, vested or not. However if the RMD exceeds the vested balance, then you only distribute the vested amount. If we're talking about someone who terminated during 2025, then also be sure to check the plan document's rules about when forfeitures occur. If they are deemed to have a forfeiture immediately upon termination (say because their vested account balance is less than $7,000) then their account balance as of 12/31/2025 (for the 2026 DCY) would only be the vested amount. For 12/31/2024 (used for the 2025 DCY, due by 4/1/2026) there couldn't have been a forfeiture by then so I think there's no question that the full account balance is used.

I did too

26 C.F.R. § 1.411(a)-8 https://www.ecfr.gov/current/title-26/section-1.411(a)-8 26 C.F.R. § 1.411(a)-8T https://www.ecfr.gov/current/title-26/section-1.411(a)-8T

I actually liked Lotus back in the day 🤣.

Isn't the top-heavy minimum covered by the safe harbor contribution?

I believe you can amended a plan to say anyone who worked at least one hours on or after 1/1/2025 will be on this vesting schedule (describe the new 5 year schedule). I know I have seen those types of amendments back when you were made to shorten you schedule back in the mid 2007s. Your criteria is non-discriminatory and treats anyone who have the same set of facts the same. Anyone who termed before 2025 isn't have their vesting schedule changed so you don't have to offer then anything.

If the kids are not deferring the maximum - perhaps their tax advisor could educate them on IRAs. If they are eligible to make IRA contributions, might be better than messing up the 401(k) testing with deferrals. They could still be eligible for the plan, and help testing, but a way for them to still get tax savings, but not skew testing.

CuseFan has the best suggestion. Restructuring is sometimes also known as component testing. both testing groups would have to meet minimum gateway. Generally the youngest HCE + older NHCE are put in a group and tested on a contribution allocation basis, the older HCE and the younger NHCE are tested on future basis. For next year - I would not suggest adding in allocation conditions - if you do , it handcuffs who can receive an discretionary employer contribution. Your plan document might waive allocation conditions for purposes of meeting gateway, but what if a younger NHCE left partway way through the year, and it would be advantageous to testing to give that person a larger contribution? you would not be able to if the plan has a last day employment condition. That person would be limited to the Safe harbor, and perhaps gateway. I do suggest that safe harbor nonelective go to NHCE ONLY in plans that are cross-tested. If it works out to give the HCE 3% and not skew testing, that can always be accomplished with a discretionary contribution. Alternatively - for some future year - if the plan is small, owner comp is high, and general participation is low - sometimes it works out better for the plan to use safe harbor match. The owners defer the maximum, if their comp is high they can receive a large match, and then make up the difference in discretionary employer. Depending on the specifics, it might get the owners to the maximum overall limit with less minimum to the NHCE to pass testing. May not work as well if the plan is top heavy. But something to consider sometimes.

I thought this seemed pretty simple but now I am getting confused .. 401k plan currently has 6-year vesting schedule. They would like to amend the schedule to a 5-year schedule, which will be more advantageous at every year. They are doing this because they feel like their current schedule is not competitive in their industry. However, they do not want to give the new vesting schedule to anyone who is terminated but still has money in the plan. Can the amendment state that only participants who work an hour of service on or after the effective date of the amendment will be subject to the better vesting schedule? And they want the new schedule to apply to all of the money in the accounts of anyone who is still employed on the date of the amendment (ie., they don't want to only apply the vesting schedule to new contributions made after that date). I guess where I am getting confused is, Is there a requirement that anyone with at least 3 years service (including terminated participants) must be allowed to elect the better schedule? Thanks!!

I don't trust these new-fangled computing devices.

The Top Heavy Minimum is not determined by Nonelective Contributions alone. As Bill Presson notes, even employee deferrals from an HCE will trigger a Top Heavy Minimum.

At least get into the '80s and get on Lotus 123 man!

I do all my stuff on green sheets still.

Have you looked at Sepirak.com. Its a software designed for the self directed industry but has the components to recordkeep 401(k) plans.