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FAQ's


Q.  What Are the IRS Limits on Benefits and Compensation - 2016?

A.  See below chart

IRS Limits on Benefits and Compensation - 2016
Qualified Plan
   Compensation limit

$265,000
Highly Compensated Definition
   Compensation test

$120,000
401(k) PIW403(b) Plan $18,000 Top Heavy Key EE Definition
   Top-ten owner test
   Officer test

N/A
$170,000
SIMPLE Plans
   Maximum elective deferral

$12,500
Social Security
   Taxable wage base

$118,500
457 Plan
   Dollar Limitation

$18,000
Defined Contribution
   Annual Additions limit

$53,000
Catch-Up Contribution Limit
   401(k) PIW403(b)/457
   SIMPLE

$6,000
$3,000
Defined Benefit
   Annual benefit limit

$210,000


Q.  What Are the IRS Limits on Benefits and Compensation - 2015?

A.  See below chart

IRS Limits on Benefits and Compensation - 2015
Qualified Plan
   Compensation limit

$260,000
Highly Compensated Definition
   Compensation test

$120,000
401(k) PIW403(b) Plan $18,000 Top Heavy Key EE Definition
   Top-ten owner test
   Officer test

N/A
$170,000
SIMPLE Plans
   Maximum elective deferral

$12,500
Social Security
   Taxable wage base

$118,500
457 Plan
   Dollar Limitation

$18,000
Defined Contribution
   Annual Additions limit

$53,000
Catch-Up Contribution Limit
   401(k) PIW403(b)/457
   SIMPLE

$6,000
$3,000
Defined Benefit
   Annual benefit limit

$210,000

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Q. How much can I contribute to my 401(K)?

A.  As an eligible participant in the plan, you may elect to defer a percentage of your compensation each year on a pre-tax basis. Your total deferral amount can not exceed the maximum amount each year as set by law. The limit is $18,000 for 2016. In addition, a participant over the age of 50 may be eligible for a catch-up contribution.


Q. What is a catch-up contribution?

A.  A catch-up contribution is an additional amount that may be deferred to the plan by participants who are age 50 or older. A participant may make a catch-up contribution if they are going to be age 50 by the plan year end. The catch up amount is $6,000 in 2016.


Q. What is a Highly Compensated Employee (HCE)?

A.  A Highly Compensated Employee is defined as a 5% owner or an employee whose compensation in the previous year exceeded a limit set by the IRS ($115,000 in 2014 and $120,000 in 2015).



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Q. What is a key employee?

A.  There are several definitions of a  key employee:
More than a 5% owner
A more than 1% owner who makes more than $150,000
An officer who makes more than $170,000 (2015 and 2016)
Or a family member of a 5% owner (spouse, children, grandchildren, or parents.)


Q. What is a Summary Plan Description (SPD)?

A.  The Summary Plan Description (SPD) is a document that is provided to employees by the employer outlining the specifications of the company’s retirement plan. It is written in a question and answer format to be user-friendly to the employee. The SPD should be referred to for general questions about the plan’s requirements, such as eligibility, and its features, such as loans and in-service distributions, among other things.


Q. What does vested mean?

A.  Vested means the amount of the employer contribution which you are entitled to based on your years of service with the company. All employee deferrals are 100% vested. Employer contributions such as match and profit sharing are generally subject to a vesting schedule which increases with your years of service with the company. Your vesting computation stops on the date which you terminate service with the employer.



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Q. What if I need money before I retire?

A.  There are very strict rules under which a participant in a plan can withdraw money prior to retirement or service termination. Some plans allow for features such as loans, financial hardship distributions, and in-service distributions. In order to determine if these options are available and if you are eligible to take advantage of these options, please refer to your SPD or see your plan sponsor.


Q. I've heard other people talk about taking loans from their plan. What does this mean and can I do this?

A.  Loans are an optional feature in a plan that allows participants to borrow funds from their account and pay the money back with interest, within a set time frame (usually no longer than 5 years). Generally there is a minimum dollar requirement and many plans limit the number of outstanding loans to one. Not all plans offer this feature. If you have further questions regarding this feature, please refer to your SPD or see your plan sponsor.


Q. Do I have to pay taxes on withdrawals?

A.  Distributions from retirement plans are generally taxable and may be penalized if the participant is under the age of 59 ½. All cash distributions (excluding loans) are taxable and subject to penalty.

To avoid tax consequences and penalties, a participant has the option to roll their accounts over to an IRA or other qualified retirement plan upon termination of service or retirement.

Loans are not taxed because the participant pays the loan amount, with interest, back to their account. If a participant defaults on their loan, they will be subject to taxes and penalties as if the loan was a distribution.



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