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  • 401k Exclusion

    I work for a small group practice, which has a 401k plan established for employees. I'm an associate doctor - and I'm excluded from participating because I'm a "high income earner."  If I were to buy into the practice then I could contribute in the plan.

    Has anyone heard of this before and if so, what are my options for retirement accounts now aside from an IRA and HSA?

    Thanks,

    J

  • #2
    This doesn't make sense because ownership doesn't give you participation rights in a 401k. In fact, if you own > 5% and/or you are a key employee and/or you are a HCE (Highly Compensated Employee), your plan must pass ADP (Actual Deferral Percentage) and ACP (Actual Contribution Percentage) tests in order for you to participate. iow, I'm not sure that the owners are able to participate.

    It sounds as if your employers do not have a safe harbor plan and employee participation is low because there is no match. That makes sense because, at lower levels of income, the match is more important to employees than the tax deduction for the 401k contribution.

    Your option is to open a taxable account and save as much as possible there - or find a new employer with a better plan.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3




      I work for a small group practice, which has a 401k plan established for employees. I’m an associate doctor – and I’m excluded from participating because I’m a “high income earner.”  If I were to buy into the practice then I could contribute in the plan.

      Has anyone heard of this before and if so, what are my options for retirement accounts now aside from an IRA and HSA?

      Thanks,

      J
      Click to expand...


      This is what some plans do.  As an HCE, you can be excluded if you are an associate.  Some dental and medical practices would exclude associates from participating.  This is something that you can take up with the owners.  At the very least, they can actually allow you in and give you the option of making salary deferrals.  They don't have to give you any profit sharing, it wouldn't necessarily cost them much.  They might have to give you a match though, so that's a business decision that the practice owners need to make.
      Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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