What is a top-heavy 401(k) Plan?
A 401(k) Plan is top heavy when 60% of more of the plan assets are allocated to key employees. In general, key employees are owners and/or officers and include employees who are spouses, children, grandchildren, and parents. When your plan is top heavy, no key participant may defer into the plan without creating an obligation for the employer to make contributions (usually 3%) to non-key participants. However, this obligation may be offset by matching contributions to a traditional 401(k) Plan or eliminated in a Safe Harbor (k) Plan. Where do I report 401(k) contributions on the participant’s W-2 and the company’s tax return? The participant’s compensation, net of 401(k) deferrals, is reported on Box 1 of the participant’s W-2. The deferrals are entered in Box 13. In addition, the employer also checks the “pension plan” and “deferred compensation” box. Can a person who makes salary deferrals still make tax-deductible IRA contributions? Perhaps. The participant (and spouse) would have t
