CRPC Employer-Sponsored Retirement Plans 3 — Questions and Answers
Question 1: An employee participates in both a 401(k) and a 403(b) plan in the same year. What is the combined employee deferral limit for 2024?
- $23,000 combined across both plans (Correct answer)
- $46,000 combined across both plans
- $23,000 per plan, $46,000 total
- $69,000 total across all accounts
Correct answer: $23,000 combined across both plans
The $23,000 employee deferral limit for 2024 is an aggregate limit that applies across all 401(k) and 403(b) plans combined.
Question 2: A plan sponsor adopts a safe harbor 401(k) provision. Which of the following is a qualifying safe harbor employer contribution?
- A discretionary matching contribution of 3% of compensation
- A nonelective contribution of at least 3% of compensation for all eligible employees (Correct answer)
- A profit-sharing contribution based on years of service
- A matching contribution of 50% on deferrals up to 2% of compensation
Correct answer: A nonelective contribution of at least 3% of compensation for all eligible employees
One safe harbor option is a nonelective employer contribution of at least 3% of compensation made for all eligible employees.
Question 3: Under what circumstances may a participant take a hardship distribution from a 401(k) plan without penalty?
- Any financial need the participant deems immediate and heavy
- Only for medical expenses exceeding 10% of AGI
- For an IRS-defined immediate and heavy financial need when no other resources are available (Correct answer)
- Only upon separation from service after age 55
Correct answer: For an IRS-defined immediate and heavy financial need when no other resources are available
Hardship distributions require an IRS-defined immediate and heavy financial need and that the distribution is necessary to satisfy that need.
Question 4: Which plan type allows participants to borrow up to 50% of their vested account balance, not to exceed $50,000?
- Traditional IRA
- SEP-IRA
- 401(k) plan (Correct answer)
- SIMPLE IRA
Correct answer: 401(k) plan
401(k) plans (and other qualified plans) permit loans of the lesser of 50% of the vested balance or $50,000.
Question 5: A highly compensated employee (HCE) is defined under IRC Section 414(q). Which threshold applies for 2024?
- Earned more than $135,000 in the prior year (Correct answer)
- $150,000 in the prior year
- $155,000 in the prior year
- $160,000 in the prior year
Correct answer: Earned more than $135,000 in the prior year
For 2024, an HCE is someone who earned more than $150,000 in 2023 or was a 5% owner at any time.
Question 6: What is the rule of 55 as it relates to qualified plan distributions?
- Participants over 55 may contribute an extra $3,500 catch-up to their 401(k)
- Participants who separate from service at age 55 or older may take 401(k) distributions penalty-free (Correct answer)
- Employees must work at least 55 hours per week to qualify for plan participation
- After 55 years of service, all plan benefits become fully vested
Correct answer: Participants who separate from service at age 55 or older may take 401(k) distributions penalty-free
The Rule of 55 allows penalty-free withdrawals from a 401(k) if you separate from service in or after the year you turn 55.
Question 7: In a profit-sharing plan, how often must contributions be made?
- Monthly, as required by ERISA
- Quarterly, to match tax payment schedules
- Annually, but only when the company is profitable
- At the employer's discretion; there is no fixed contribution schedule (Correct answer)
Correct answer: At the employer's discretion; there is no fixed contribution schedule
Profit-sharing plan contributions are entirely discretionary; the employer decides the amount and timing each year.
CRPC Employer-Sponsored Retirement Plans 3
An employee participates in both a 401(k) and a 403(b) plan in the same year.
What is the combined employee deferral limit for 2024?