Top Heavy Example

[Guest jetfaninmn]

On 12.31.04, the 4 Key Employees of ABC Corp had a balance of $ 100,000. One had a contribution rate of 5%.

The three active non key employees had a balance of $ 38,000. There was an additional non key employee who took a $12,000 distribution on 5/15/04 and terminated on 5/15/02.

When doing the top heavy test for the 12.31.04 determination date,

1. Can the $12,000 distribution still be used due to the one-year look back because it was still in the plan on 1.1.04?

2. When is the top heavy contribution due?

Just checking my skills.

Thanks

[Guest trumpy]

I assume you are running the test to determine the top heavy status for the 2005 plan year and plan year is calendar year.

The $12,000 distribution would not be included since the employee did not work in the lookback year.

The top heavy contribution would need to be made by the due date of 2005 tax return.

[Guest jetfaninmn]

That is what I thought, but the plan is now terminating on 12/31/05. Is the contribution still due?

[Guest trumpy]

I would think so - unless the plan has a safe harbor match with no other employer contributions being made to the plan or the top heavy is offset by a matching contribution. Doesn't sound like this is the case though.

[Guest jetfaninmn]

No it is not making any sort of ER contributions. Thanks for the help.

[Guest jetfaninmn]

One more twist, two new participants entered the plan on 7/1/05. These participants are eligible for the 3% contribution as well and we use only their comp while a participant (as per the document). Correct?

[Guest trumpy]

Top Heavy contribution has to be based on full year comp

[Guest jetfaninmn]

Thanks, found the reg - IRC 415©(3), 416©(2)(A).