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401k march 15 deadline

For all companies that sponsor a 401(k) plan, the March 15th deadline is quickly approaching. March 15th is deadline for processing corrective distributions for failed actual deferred percentage (ADP) test. Failure to meet the deadline will result in a 10% excise penalty for any refund amounts that were due to the Highly Compensated Employees (HCE).

HCE’s are defined as an employee that is 5%+ owner or $115,000+ in annual compensation. The ADP test compares what the HCE’s deferred into the 401(k) versus what the Non-Highly Compensated Employees Deferred (NHCE). If there is too large of a gap between the average of the HCE’s versus the average of the NHCE, the plan is required to refund contributions to the HCE’s until the contribution level can pass testing. The typical rule of thumb is the HCE’s cannot defer more than 2% of the average of the NHCE’s to pass testing but this amount will vary based on the actual testing results.

If you are a safe harbor plan, you do not have to worry about the March 15th deadline because safe harbor plans are automatically deemed to pass the ADP test regardless of how much the HCE’s defer into plan. This makes safe harbor plans a very effective plan design for owners that are looking to max out their 401(k) deferrals in a given plan year.


Michael Ruger

About Michael………

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

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Investment advisory services offered through Greenbush Financial Group, LLC. Greenbush Financial Group, LLC is a Registered Investment Advisor. Securities offered through American Portfolio Financial Services, Inc (APFS). Member FINRA/SIPC. Greenbush Financial Group, LLC is not affiliated with APFS. APFS is not affiliated with any other named business entity. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.