Leaderboard

1. The cash balance credits themselves cannot directly be counted dollar for dollar as part of the gateway (they aren't actually contributions, they're just hypothetical notional accounts written on paper). However, see Treasury Regulation 1.401(a)(4)-9(b)(2)(v)(D)(3). This allows the average actuarial equivalent value of the benefit accruals in the cash balance plan for the NHCEs who benefit under both plans to be considered as satisfying a portion of the gateway. Caution: the actuarial value is not equal to value of the account balance credits. 2. The terms of the plan document must be followed, so if it requires prorata PS for a group, then you are correct. I agree that each participant should probably be placed into their own individual allocation group, assuming passing 410(b), coverage, is not an issue. That said, perhaps you could do this: Step #1. have the employer contribute and then allocate a pro-rata PS amount - an amount that you know is the minimum that any NHCE participant will receive as PS. Step #2: Run the combined plan 401(a)(4) test - uh oh, it fails. Step #3: Adopt a corrective amendment under 1.401(a)(4)-11(g) to correct the 2012 failure. Under the amendment, language will be needed that provides various additional PS to the various NHCEs as needed in order to pass testing. Step#4: Allocate the additional PS as specified according to that amendment. Just a thought.

Lou S. is correct - the penalty & taxes will only apply to the earnings. Roth portion: $500 * 30% taxes = $150 $500 * 10% penalty = $50 Net proceeds: $4300 Of course, if you don't withdraw it you would have an extra $52,000 tax-free at retirement (6% growth over 42 years). You're not really costing yourself $200 in taxes & penalties; more like $47,000 in earnings.

And, although the earnings may, indeed, be from capital gains, taxable distributions from a qualified plan are taxed as ordinary income, not the lower capital gains rates.