ADP/ACP Testing

[Guest dstran]

I have a plan that utilizes profit sharing and after tax only.

First question: are the post tax contribs required to be tested via ACP every year?

Plan is considering going adding a 401k component and adding safe harbor. If safe harbor is added, will post tax contribs be exempt from testing or will they need to be tested?

[Tom Poje]

after tax must be tested every year, even if plan is safe harbor.

now the question would be,

I can make Roth contributions (outside the plan) (no taxes on earnings) or

I can make after tax contributions (taxes on earnings)

hmmmmmmmmmmmmmmmmmm

[Guest dstran]

thanks tom!!

one more question. this same plan currently has a 15% profit sharing. can employer pull out 3% of this to go to safe harbor and still allocate the remaining 12%?

[Tom Poje]

you can't simply 'create a 3 SHNEC'. the plan document must provide for such an animal, and the proper notice must be given.

now, if you are asking

the sponsor provides a 15% profit sharing each year. can he provide a 12% profit sharing and a 3% SHNEC?

yes, as long as evrything is properly in place. in other words, if you currently have an existing 401k it is too late this year. if all you have is a profit sharing, then yes, you could add a safe harbor 401k feature this year.

[JDuns]

Are you planning to allow some of the after-tax contributions to be designated as "Roth 401(k)" so that you can get the tax free growth without any income limitation on eligibility?

If you are already going to communicate the differences between before and after tax investing, why not add the Roth feature?