Frequently Asked Questions

• Contributions made by the sponsoring employer to the plan are tax deductible
• Investment earnings within the trust are tax deferred
• Contributions plus any investment earnings become taxable to a participant only when the participant receives a distribution from the plan; a participant can continue to defer any taxes by electing a direct rollover to an IRA or another qualified retirement plan.

A qualified retirement plan can be adopted by a corporation (C or S), a partnership, an LLC or LLP, or a sole proprietor.

• For corporations, it is the employees’ W-2 compensation. S-Corp. distributions are not includable.
• For partners in a partnership, it is their K-1 earned income. Unearned income (such as interest, dividends, royalties, etc.) are not includable.
• For a sole proprietor, it is their Schedule C income.

Maximum compensations and contributions apply to a variety of plans. See Caps and Maximum Contribution for more information.

Employer tax deductible contributions must be made by the due date (including any extensions) of the employer’s tax return. Qualified retirement plans which are subject to minimum funding standards (i.e. defined benefit, cash balance and money purchase plans) must make the required plan contribution no later than 8 ½ months after the plan year end to avoid a funding deficiency and the imposition of excise taxes.

A written plan document is required, and it must be adopted no later than the last day of the employer tax filing due date for which a plan contribution will be claimed as a tax deduction.

Qualified retirement plans are classified as either Defined Contribution (DC) or Defined Benefit (DB). View our plan types to learn more about each of these structures and which might best suit your needs.

Please don’t hesitate to reach out to us if you have additional questions or need clarification.

The maximum annual amount is the lesser of 100% of compensation or the limit specified for the current year, subject to tax deductible contribution limitations.

For further explanation, see our Caps and Maximum Contribution section or don’t hesitate to reach out to us in you have additional questions or need clarification.

The annual deferral limits are set by the IRS and tend to increase year by year.

For further explanation, see our Caps and Maximum Contribution section or don’t hesitate to reach out to us in you have additional questions or need clarification.

For plans with fewer than 100 participants, the Department of Labor (DOL) provides a “safe-harbor” timeframe. The deferrals must be remitted within 7 business days from the time that it was withheld from the employee’s salary.

For plans over 100 participants there is no such safe harbor. Accordingly, the employer must remit the deferrals as soon as administratively practical.

Yes, provided the plan document contains a participant loan provision. The maximum amount that a participant may borrow from a plan is generally 50% of their vested account balance, but not more than $50,000.

Loans must be charged a competitive interest rate (usually Prime Rate plus 1%). Loans must be repaid over a period, not to exceed five years, unless the loan is being used to purchase a primary residence. In that case, loans may be repaid over a longer period of time.

Distributions from a qualified retirement plan that are not taken as a direct rollover to an IRA or another qualified retirement plan are subject to 20% federal tax withholding. Hence, the participant will only receive 80% of the total benefit. Distributions taken as a direct rollover would not be subject to the 20% federal tax withholding, and would not be subject to taxation until subsequently withdrawn from an IRA or qualified retirement plan.

Distributions taken before age 59 ½ are subject to an additional 10% excise tax, unless:

• On account of death or disability of the participant,
• The distribution is part of a series of substantially equal periodic payments (not less frequently than annually) made over the life (or life expectancy) of the participant or the joint lives (or joint life expectancies) of the participant and designated beneficiary, or
• On account of separation of service after attainment of age 55.

Minimum required distributions must commence at a participant’s required beginning date, defined to be the following:

• 5% owner – the April 1 following the calendar year in which the 5% owner attains age 72; minimum required distributions must continue each calendar year thereafter, including the same year (if applicable) in which the first minimum required distribution was taken.
• Non-5% owner – the April 1st following the later of the calendar year in which the non-5% owner attains age 72 and retires from the employer sponsoring the plan; minimum required distributions must continue each calendar year thereafter, including the same year (if applicable) in which the first minimum required distribution was taken.
• Minimum required distributions are determined in accordance with IRS regulations and tables, computed by dividing the participant’s account balance by the life expectancies of the participant and the designated beneficiary.
• There is a 50% excise tax on any portion of a minimum required distribution that is not taken.

Each year, reporting and disclosure series Form 5500 (with supporting schedules) must be filed with the government. The due date (without extension) for filing the Form 5500 is the last day of the seventh month following the end of the plan year. The due date can be extended for an additional 2 ½ months by filing an extension (Form 5558).