Author Topic: Getting new 401k plan at work  (Read 190 times)

legallyblond

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Getting new 401k plan at work
« on: October 09, 2017, 07:16:32 AM »
Working with my HR to get a new 401k plan in place.  I was told by our plan representative that if the company elects to go with a plan that allows for after tax contributions (allowing for a mega back door Roth) that that would take the plan out of the safe harbor and subject the plan to ACP testing and possible refunds to highly compensated employees. Is this correct?  I've never heard of this.  They won't go with this option if this is true because they want a safe harbor plan. I really want a mega back door roth. Anything anyone can point me to that shows this is incorrect?  Thanks. 

terran

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Re: Getting new 401k plan at work
« Reply #1 on: October 09, 2017, 07:58:17 AM »
My take from https://www.lifetimebenefitsolutions.com/news-room/401-k-news/plan-design-and-after-tax-contributions/ (found by google-ing "401k after tax safe harbor") is that while a plan can remain a safe harbor plan, the after tax contributions are still subject to ACP testing, so they're half right. It's also possible I'm not reading that right and they're all the way right.

Bojack

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Re: Getting new 401k plan at work
« Reply #2 on: October 09, 2017, 08:03:30 PM »
Your administrator is correct. It's a reason many plans don't allow after-tax (nonRoth) contributions. Aftertax contributions are usually only made by HCEs (as HCEs are usually the only ones with the discretionary income), so it can be difficult to pass the ACP test with them. Also, after-tax isn't exempt from testing, even in a safe harbor plan.

Not only that, but I think the plan would also lose the Top Heavy exemption (if it were otherwise top heavy) if after-tax contributions were made on top of deferrals and match.