Q1. May an employee stop contributing and withdraw his/her money from the plan?
Q2. What are the reasons for financial hardship?
Q3. What is an elective contribution?
Q4. What is an employer contribution?
Q5. What is the difference between a Matching contribution and a Non-elective contribution?
Q7. What is the most money an employee may put into his/her account?
Q8. What is the date the form 5500 is due?
Q9. What is the most compensation that may be recognized for plan purposes?
Q10. What is the Social Security Taxable Wage Base limit?
Q11. How quickly may an employee receive money from the plan?
FAQ – Answers
Q1. May an employee stop contributing and withdraw his/her money from the plan?
Answer: An employee may stop contributing money from his or her pay at any time. However, the plan document determines if and when an employee is able to receive a distribution of his/her account. The most common rule is that unless death, disability, normal retirement or separation from service occurs, a distribution from an employee’s account is not likely. There are exceptions for financial hardship, loans and in-service withdrawals. Please consult with your plan’s analyst for your plan’s specific withdrawal options.
Q2. What are the reasons for financial hardship?
Answer: The following are acceptable reasons for obtaining a hardship distribution under the terms of the Dynamic Pension Services, Inc. prototype document:
- To pay un-reimbursed medical expenses which you, your spouse, or dependents incur;
- To purchase your principal residence;
- To pay tuition for the next period of post-secondary education for you, your spouse, children, or dependents;
- To prevent eviction from your principal resident or the foreclosure on your principal residence;
- To pay funeral expenses of parents, spouse, children or dependents; or
- To pay certain expenses relating to the repair of damage to the employee’s principal residence that would qualify for the casualty deduction, such as those resulting from hurricane or flood damage.
- To pay certain expenses incurred on account of a federally declared disaster.
Q3. What is an elective contribution?
Answer: An elective contribution is a contribution contributed to the plan at the choice of the employee. The employee elects to defer a designated amount of his/her salary to the plan. This contribution is also referred to as an elective deferral or an employee salary deferral.
Q4. What is an employer contribution?
Answer: An employer contribution is a designated amount of money put into the plan by the employer typically as a matching contribution and/or profit sharing contribution. A profit sharing contribution may also be called an employer non-elective contribution.
Q5. What is the difference between a Matching contribution and a Non-elective contribution?
Answer: Matching contributions are employer contributions that are made on account of elective deferral contributions. Only the participants who participate by making elective deferral contributions receive matching contributions.
Non-elective contributions are discretionary profit sharing contributions given by the employer to every participant in the plan who qualifies for a share of the contribution. The participant does not have to make an elective deferral to the plan in order to receive the non-elective contribution.
Q6. What is the date for the Employer to deposit contributions to the plan and be deducted on the
prior year’s company tax return?
Answer: In order for deposits to be considered timely and eligible for deduction on the Employer’s tax return, all money for the applicable plan year must be deposited by the appropriate tax filing deadline for the entity type of the Employer including extensions.
Q7. What is the most money an employee may put into his/her account?
Answer: For most of our clients, the plans are drafted to allow an employee to contribute up to the maximum percentage of compensation and dollar amount permissible under Section 402(g) of the Internal Revenue Code not to exceed the limits of Code Section 401(k), 404 and 415. Compensation typically refers to gross pay. However, a plan may change compensation to only include regular pay and no bonus pay, etc. Refer to your plan’s document for the definition of compensation.
For the 2023 calendar year, the IRS permissible dollar mount is $22,500. In addition, employees who attain age 50 or older at any time during the 2023 calendar year may contribute an additional $7,500 as a “catch-up” contribution.
Q8. What is the date the form 5500 is due?
Answer: A 5500-tax form and applicable schedules is due seven months after the end of the plan’s year. A one-time extension of time (another two and one-half months) may be obtained by filing form 5558 in a timely fashion.
Q9. What is the most compensation that may be recognized for plan purposes?
Answer: For plan years beginning in 2022, the compensation limit is $305,00. For plan years beginning in 2023, the compensation limit is $330,000.
Q10. What is the Social Security Taxable Wage Base limit?
Answer: For plan years beginning in 2022, the limit is $147,000. For plan years beginning in 2023, the limit is $160,200.
Q11. How quickly may an employee receive money from the plan?
Answer: Assuming a distributable event has occurred, we (Dynamic Pension Services) set a time frame of up to 5 business days from the date the participant’s request is “verified” by the Employer to complete our calculations and internal reviews. This time frame may be shorter or longer depending on the plan’s funding vehicle, reason for distribution, and whether or not our online distribution system is used for any part of the distributable event.