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Posted

401(k) Profit sharing Plan, new comp.   Doctors max out, staff gets minimum.   They currently deposit the 3% safe harbor with each payroll and would like to do the same with the profit sharing.   Anything negative with doing this?   No LDR, or hours requirement for P/S.    

If they do this, for the HCE's that max out,  would it be better to divide the non-elective P/S that they will receive and do that per payroll, or to contribute the percentage each payroll and stop when they hit the max.  

I've never had anyone that wanted to deposit the P/S each payroll.   

Posted

The downside is that you may contribute too much or too little to the employees. If too little, you have issues with testing and BRF because owners have received deposits in a discriminatory manner; if too much to the employees, it costs owners more than necessary. I have some clients who want so badly to fund it per pay period that they provide more than we estimate the minimum to be just so they don't have any BRF issues.

R. Alexander

Posted

I have had clients who do this. Pain in neck because of requirement to true up when predicted does not equal actual precisely. I believe there is a provision in the 401(a)(4) regs that says the timing of contributions will not be discriminatory (e.g., if more front-loaded for owners) b/c nondiscrimination determined on annual basis, but I have not been able to locate it in the time I allocated to task.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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