After Tax Contribution HYPE!

[Rai401k]

I'm curious about what other TPAs are doing about the recent hype about after-tax contributions. We have received so many phone calls in the past month asking us to amend client's plans to add after tax contributions because of notice 2014-54.

We do not want to add them to our plans for many reasons but the main being the ACP testing and of course top heavy problems.

Is there anyone that is adding after tax contributions to their plan? If so, what are you doing to remedy issues with ACP testing and top heavy issue.

I understand this can work for owner only plans but we are getting requests from small plans where the HCEs and Owners want to put in the after tax contributions and take an in-service to roll it in to a Roth IRA!

[Tom Poje]

tell them you can't take an in-service without running the ACP test first. if you fail that the $ are refunded

(but then remember, I'm a Grinch and like to spoil people's plans.)

[Stable Two Financial]

I agree with Tom. These schemes tend to end poorly when reality meets testing.

[K2retire]

Explaining that they will likely fail the ACP test is often enough to persuade them it's not worth the expense to amend the plan.

[Tom Poje]

so it really boils down to whether they mind getting a refund (most likely) every year.

probably some of the after tax will remain in the plan and could then be moved.

they have already paid taxes on the $ so there are no tax consequences.

if the plan was safe harbor they lose the top heavy free, but maybe that doesn't matter.

the example I've used is let's suppose the plan has a basic match, and everyone defers 5% or more, so there is 4% for match (which could be used in testing) so the max additional match for the HCE is 2%. someone making 260,000 could put away 5200 in after tax - and that is with ideal conditions of all NHCEs deferring

(or at least that is the way I understand how it would work - not the "You can sock away an extra $20,000 in after tax and convert to a Roth"