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Top heavy contribution to SARSEP required if catch-up only


Bird
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Employer has an old (obviously!) SARSEP.  No NHCEs contribute.  Owner should be allowed catch-up, right?  Are top heavy contributions required?  I think not...IRS examiner guidelines  say:

Determine if the plan is top-heavy or is treated as top-heavy and if so, confirm that top-heavy minimum contributions were made. If a the plan is a SARSEP verify that elective contributions made by non-key employees were not used to satisfy top-heavy minimums, but that elective contributions made by key employees (other than catch-up contributions) were used to determine the minimum that non-key employees should receive.

How do you feel about it if the owner has already contributed, say, $20,000, but withdraws the excess contributions before 12/31?

Ed Snyder

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Yes, top-heavy contributions are required (if the plan is top heavy). Although, the IRS materials you mentioned provides that the catch-up contributions are not taken into account in determining the HCE's ADP rate (which I agree with), only the amount of elective contributions that are in excess of $18,000 (or plan limit if lower) can be treated as catch up contributions. Since no HCEs are participating, owners may make elective contributions up to the catch-up elective contribution limit ($6,000 for 2017).  Assuming there are no nonelective contributions to consider, the plan IS top-heavy. Hope this helps.

I agree with Mike that the distribution has no bearing.

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I meant to say that where there are no NHCE, the ADP test does not apply. I misread the facts, In your, case, the 125%-ADP rate would be zero, and all contributions except for the allowable catch-up would be  an excess contribution.   Will edit my post to remove that portion. Thanks Bird. 

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