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Question about Highly Compensated Employees and 401(k) Contributions

Anonymous — Sun, 12 Apr 2009 19:21:32 -0800

Am I a Highly Compensated Employee (HCE) with regards to making 401(k) contributions? Here's what I know:

* A Highly Compensated Employee (HCE) is limited in his or her contributions to a 401(k) program.

* According to this page, (and others) if I made over $105,000 in 2008, I would be considered an HCE in 2009.

* My company will automatically limit the contributions I can make if I earn more than the HCE limit from them.

Here's my situation:

Last year I switched jobs from Company A to Company B in February. At Company A I was earning about $80,000 a year, at Company B I make $110,000 a year (Go me!). Company B would automatically declare me an HCE if I earned over $105,000 from Company B last year. Because I switched mid-year, I earned about $100,000 from Company B last year. However, I received about $20,000 from Company A last year (including bonus and unpaid vacation time). So, my total income last year was $120,000.

My question then is whether I am an HCE based on my total annual salary from last year (across both employers) or am I not an HCE because my salary from my current employer is less than the limit?

Throwaway email account: mefi.hce@gmail.com

[Asking as Anonymous to avoid awkwardness with my MeFi coworkers]

Is the IRS mad at me?

stupidsexyFlanders — Tue, 19 Feb 2008 08:00:49 -0800

Good news! Going through some old paperwork I just found a check for $2,600 that I'd never cashed from 2003. Bad news! It was a rollover distribution from a 401K at Fidelity, made out to E-trade. Fidelity says they did file a 1099 in the year they cut the check. Am I screwed for the back taxes, plus penalties? Apparently I had a notion to close out this account and consolidate the funds in a rollover IRA I have at E-trade. Never happened.

In the five years since, I've not heard anything from the IRS about this, despite the outstanding 1099 never being matched up by E-Trade with whatever form they file to show they got the $$ within 60 days.

I can't just unwind the whole thing and "decline" the check, as this was an employee 401(k) at Fidelity and they won't allow me to "add" to it. I explained it was never technically "withdrawn" but to them it was (the account still exists, with a zero balance). All they'll do is cut another check to the institution I name.

If I go that route I feel sure the IRS will match the distribution up with the deposit at E-trade and inflict all kinds of heinous penalties on me. What are my options?

I know you're not a tax advisor, but I don't think the $$ at stake here warrant paying an actual tax advisor. Maybe I'm wrong about that?

Is our 401(k) protected? How?

quinoa — Fri, 18 Jan 2008 07:58:02 -0800

Is our 401(k) protected through ERISA (or anything else) if the institution where funds are housed goes belly-up tomorrow? Our small business has a (Paychex) 401(k) plan, with funds housed at Merrill Lynch. Employees can choose among about a dozen mutual funds, bond funds, a cash acct, etc. We have an ERISA bond that is renewed triennially.

Does ERISA, or the bond, protect and/or guarantee that employees won't lose their money if the place housing the investments (in this case, Merrill Lynch) goes down the tubes? Our ML rep assures me there's no problem, and that ERISA protects employees' funds. Paychex says they can't imagine that such a risk is really something to worry about...but call me crazy for not trusting those sources.

The references to ERISA I can find suggest employees are protected from the employer's demise. Employees obviously take their own risk regarding the funds they choose to invest in. But what about the financial institution managing/holding the funds?

Any words of assurance? Can anyone point me to the ERISA language that protects employee 401(k) investments in such a situation? (I'm not looking for assurance about ML's financial situation.)

What should I do with my Simple IRA?

junkbox — Tue, 13 Nov 2007 12:17:59 -0800

I have a Simple IRA from a previous employer. Should I roll it into my 401(k), convert it to a Roth IRA, or do something else entirely? I contributed to a New York Life Simple IRA through my previous employer (small % of employer matching, 100% vested) from 2004-2005. I never bothered to roll it over because it's such a small amount of money (Google research supports the idea that come 2008, I can roll my Simple IRA into a Roth IRA in one step. (I meet the qualifications for a Roth IRA; married, filing jointly, income below $100,000.)

* Am I going to incur a bunch of fees or other nonsense that would make this a silly idea? Should I roll it over into my 401(k) instead?

* Is there a smarter, more flexible or financially savvy thing I should do with my Simple IRA that I haven't thought of yet?

* Finally, if I go with a Roth, where's the best place to open it?

What experiences have you had with 401(k) rollovers?

moz — Wed, 15 Aug 2007 23:39:44 -0800

What experiences have people had rolling 401(k)s over into traditional IRAs? have you had second thoughts after the fact? i'm thinking of doing this with retirement money from my last job, but i thought i'd ask around. there's a dizzying array of advice to be had ... and i'm not sure i'll be more oriented after this question is posted.

it may help if you picture travis--of the cosmos!--asking this question.

401(k) with index funds?

bananafish — Wed, 04 Apr 2007 13:12:05 -0800

Help me find a 401(k) plan or retirement plan managed through a payroll service that offers index funds. Currently, we have a 401(k) plan at work that offers only mutual funds with high fees (100 basis points). We only have four employees. We'd like to switch to a 401(k) provider that offers index funds as an option. The catch is that my boss would like the 401(k) plan to be offered through a competent payroll service (Paychex or similar). He is worried that without having a payroll service involved the contributions will not be transferred immediately and he will incur substantial penalties (he's had problems with this in the past). I understand that ADP does offer an all index fund 401(k) plan, but I've had two friends who have had horrible experiences with ADP (as in one friend didn't get paid for a month), so I'm leery. Has anyone had a good experience with ADP's all index fund 401(k)? Does anyone have good experience with something similar?

Something smells fishy...

matty — Tue, 23 Jan 2007 10:52:45 -0800

I'm not quite what sure what do about a financial situation, and I'd appreciate some opinions from the hive. I'll try my best to provide additional info if necessary. Also, I would loved to have asked this question anonymously, but I can't find the 'ask an anonymous question' link anymore?? Anyway... a former employer put contributions in my 401(k)... Here's the basics,

1. I no longer work for the company.

2. Former company placed a not-tiny amount of employer contributions in my 401(k) account after I had already left the company (as part of their yearly contribution schedule).

3. I was not yet 'vested' with the company when I left, so I had no right to the contribution.

4. I called the company 9 months ago to tell them that the money was erroneously placed in my account. (They said thanks!).

5. Current Day - the money is still in my account, and has earned a tidy profit. Employees choose from a range of funds to make up their retirement plan - for once I apparantly chose wisely.

6. I've asked them (again) to remove the contribution from my account. They said - on the phone - that they left the money there in case I decided to come back to the company. How nice of them (I actually said, "Oh, thanks!"). I technically closed the account when I rolled my personal payroll investments into a 401 with my new employer.

I know the money isn't mine, and I don't even want the profit as it was never my money. BUT - is it right for the employer to make the profit off of my investment choices? Aren't they really just saying, "Here, we want you to hold on to this chunk of our money in your name so that we don't pay taxes on it, and when we've made a profit on it we'll take it back."?

I realize that I should also be asking myself if I'd feel differently if the investments had lost value instead of gaining so much...

I guess my questions are, without me going to a lawyer - does all this sound legal? Should I call 'somebody' like the IRS or something? Should I just let it go??

Down payment blues

Saucy Intruder — Sat, 13 Jan 2007 08:14:40 -0800

I am looking to buy a house in the next 2 years or so. Should I (a) suspend payments to my 401(k) and build up my after-tax cash reserves, or (b) keep making my regular contributions, and borrow against the balance when the time is right? I've been racking what's left of my brain trying to figure out what option puts me in a better financial situation. I think the basic tax implications are the same. If I assemble cash now, I do it on an after-tax basis. If I borrow against the 401(k), I repay the loan on an after-tax basis. So the solution, it seems, is that I should take the loan on the 401(k) so as to defer my tax liability for as long as possible. Right? Or should I try to aggressively invest my cash and beat the interest rate on 401(k) loans, which is currently 10.25%?

401(k) woes, big time

selfnoise — Mon, 26 Jun 2006 18:15:33 -0800

Having trouble with my 401(k) direct rollover... how screwed am I? Here's the deal. As far as I know, I have to complete a 401(k) direct rollover within 60 days of requesting it. I requested it from previous employer: previous employer sent me the check and paperwork, made out to my current employer's plan. Current employer told me I needed to send A, B, and C with the check to ensure it was accepted. I sent A, B, and C along with the check.

A week later, I get the check BACK from Current Employer. They now want paperwork D,E, and F. I request this from the previous employer's plan... they send it. I just overnighted the check back to my current employer's plan.

My question: my understanding is that there is a 60-day time limit for these transactions. The check was dated 05/11/2006, which I think makes this day 44. If I can't convince my current employer to take the damn check, do I then owe the IRS 20% as withholding? Is this penalty the same regardless of the plan the money was in? Is there any way I can get around this? I really can't afford to pay 20% of my retirement savings in taxes right now (or ever) and am starting to wonder if my current employer could really screw me by not accepting the check a second time.