Roth deferrals

[doombuggy]

I have been working on some prelim calculations for a client, and we are having a problem with a terminated participant. This guy requested that 5% of his pay be withheld as Roth deferrals. The client provided his annual gross comp and the deferral amount; when I do the math, it come to about 4.13%. The participant's weekly gross was $1000, so 5% would have been $50. The weekly Roth deposits that were made were $41.38. Is she doing this incorrectly? We think she should have withheld all taxes off the top (the $1000), but then withheld $50 from the remainder, since he requested 5% of comp to be deferred.

the bottom line is that they made too many safe harbor match deposits, because they assumed that he was deferring 5%....

[Bird]

Yes, it sounds like they were incorrectly withholding based on net pay.

[K2retire]

Relevant question: are they doing that to anyone else?

[doombuggy]

This guy is the only person doing Roth, i believe. He is the only one who poped up with a problem, based on the Safe Harbor Match. The client deposited a SHM based on the fact that the participant requested 5% of comp w/h in Roth deferrals. The bookkeeper wrote back to me today that:

Our accountant set up the 401K & Roth IRA in our computer. The percent for Roth is 5% after taxes not before.

???

The PDF files she sent me looks like his final paystub, and indicates that they took 5% of his net pay. The problem is, the SHM is 4% of his base pay.....

[doombuggy]

The owner of our company feels that an employer can do the deferral off of net (meaning after taxes) pay, but that the safe harbor match should follow, if that is how they do it. A co-worker is arguing with her that the document allows you to exclude stuff from comp (ie deferrals, 125, etc) but not taxes. Boss says there is no guidance on this issue?

[K2retire]

You work for a company in this industry and your boss says you don't have to follow the document? That's scary!