Message Boards Digest

March 23, 2021

Here are the most recently added topics on the BenefitsLink Message Boards:

Hojo created a topic in Cross-Tested Plans

DC + CB Combo -- Effect of Short Plan Year on Gateway Percentage

"The client wanted to move to a calendar year and thus created a short plan year 10/1/2020 - 12/31/2020. The CB document indicates 1,000 hours required for an accrual so it appears there is no CB accrual during the short plan year. In this case, I'm assuming we still use the combined plan gateway rules, but there is no CB accrual when generating the required gateway percentage. Correct?"

4 replies   |    35 views   |    Add Reply

BG5150 created a topic in Distributions and Loans, Other than QDROs

State Tax Withholding Was Elected But Not Withheld Because Carrier Ignored Election

"Two participants took distributions in 2020. The paperwork CLEARLY states that they wanted state tax withheld at 10% (New York). The major carrier failed to withhold. Participant only finds this out in February 2021 when they get the 1099-R. The carrier told me that because NY doesn't have mandatory w/h, they just don't do it. Even though the form, again, CLEARLY, has a section for it. Does the participant have any recourse against the plan/carrier for failure to execute the instructions (in seemingly good order) of the account holder?"

3 replies   |    49 views   |    Add Reply

Zooey72 created a topic in 401(k) Plans

Effect of Payroll Tax and Insurance Withholding on Maximum Amount of Roth 401(k) Contributions

"My wife and I have developed a new strategy for our retirement, but I have run into a bit of a snag in figuring out in what way taxes are taken out of her paycheck.

She makes $40k a year. Her employer offers a Roth 401k, which we are now taking advantage of. It matches 4 percent at a 100% rate. My wife is 55 years old. We have decided that for the remainder of her working life she will contribute as close to the max of $26k a year that we can (which currently translates to her contributing 70% of her income to her 401k).

I make enough money to where I can cover all of our expenses and we should be able to live comfortably until retirement. However, although I make good money (over $100k a year), my employer offers nothing in the way of benefits, so we get all of our benefits from her employer.

The max her company will allow her to contribute is 75%. We have no issue if she has no actual income coming into the house, and all of her money goes into her Roth 401k. However, we do have an issue with too much money being taken out and not enough left in there to cover our health insurance.

So this is my question. Do employers first take out tax and insurance and than use what is left over as a percentage? So with her $40k, let's say tax and insurance equals $10k a year, leaving her with $30k. Of that $30k, $22,500 would go to her Roth 401k. Or, do they take out the money first from her gross income of $40k (which would be $30k), and than subtract tax and insurance? I am aware of the $26k limit for her. Or to put it more plainly, if her employer allowed a 100% contribution would they take out the insurance and tax before putting the rest in, or would she not have money left for her insurance?"

5 replies   |    51 views   |    Add Reply

SSRRS created a topic in 401(k) Plans

20% Was Withheld But Not Sent to IRS Until Subsequent Plan Year

"Terminated employee in DC Plan elected a lump sum. 20% was withheld as required. The 20% sat in the plan until the following plan year when it was sent to the IRS. The 80% that the employee received as a lump sum was shown on the 5500-SF in the year it was received. The 20% withholding was shown on the following year's 5500-SF (because it sat in the plan assets until the following plan year). Are there potential penalties for this? Can this be rectified?"

10 replies   |    64 views   |    Add Reply

Zooey72 created a topic in Retirement Plans in General

My 3-Bucket Approach to Retirement

"What I have come up with may be re-inventing the wheel; if so, call me out on it.

I'm looking at retirement in terms of having 3 'types' of money: [1] tax-deferred, which is the worst kind; [2] money with capital gains tax; and [3] the best kind: Roth. My plan is this: Out of the traditional 401(k)s that my wife and I have gotten during our life, I'm going to pull out $24k a year in retirement. That number is important because, with the standard deduction, I will not pay taxes on it. From there, I will pull money out of our brokerage account, amounting to roughly $56k, which puts me just under paying long-term capital gains tax. And lastly I will pull out whatever else I want from our Roth accounts, which by their nature I do not pay tax on. Is this a good strategy? As best I can figure it, I will pay nothing in taxes and have an income in retirement of more than $100k."

2 replies   |    49 views   |    Add Reply

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