Each type of qualified retirement plan contribution is subject to different document provisions as well as different IRS/DOL rules and regulations. For purposes of this article, we will refer to each type of contribution as a “source.”
Contributions being deposited into an incorrect source require corrective action to restore the plan to the position it would have been in had the contributions been deposited into the correct source. This can be a time consuming and costly process.
To avoid deposit errors, it is important to identify for the plan’s investment company, the correct source for each type of contribution at the time of the deposit. All retirement plans allow for one or more of the following contribution sources, all of which require separate source recordkeeping:
- Pre-tax 401(k) or 403(b) Deferral Contributions
- After-tax 401(k) Roth or 403(b) Roth Contributions
- Rollover Contributions
- Safe Harbor Contributions
- Profit Sharing Contributions
- Matching Contributions
- Prevailing Wage Contributions
Maximum Employer Contribution Calculations:
In those instances where employer contributions are being deposited with each payroll, it is important to limit the employer contribution allocations based on the maximum compensation limit in effect for that plan year.
For example: For plan years beginning in 2018, if a plan sponsor is depositing a 3% safe harbor contribution each payroll, the maximum that can be deposited for any employee earning more than the maximum compensation limit of $275,000 is $8,250.00. For plan years beginning in 2019, the maximum compensation limit increases to $280,000 which increases the 3% maximum safe harbor contribution limit to $8,400.