Are 401K Roth contributions be excluded in the 401K fairness test?

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vbn
Posts: 29
Joined: Sat Jul 01, 2017 9:24 pm

Are 401K Roth contributions be excluded in the 401K fairness test?

Post by vbn » Mon Apr 16, 2018 10:12 am

Hi everyone,

In the past few years, I received a distribution from my 401K because of the 401K fairness test. My company also offers a 401K Roth option.

I'd like to max out on the 401K contribution limit and not receiving a distribution every year. I was wondering if I contribute some amount to the 401K Roth and most to the regular 401K, would it help to avoid receiving a distribution every year? For example: $2500 to 401K Roth and $16000 to 401K. Would the amount contributed to the 401K Roth be excluded in the fairness test?

I asked my company's HR representatives about this, but I got no answers. I was hoping someone on this board would know the answer.

Thank you,
vbn

clipson
Posts: 13
Joined: Sun Jun 11, 2017 12:03 pm

Re: Are 401K Roth contributions be excluded in the 401K fairness test?

Post by clipson » Mon Apr 16, 2018 10:41 am

There is nothing referred as a "fairness test" in the IRS guidance on 401(k) plans. Perhaps that is the parlance that your company has adopted.

Anyway, it sounds like you're getting a refund due to your company's plan failing the ADP test which compares the contribution rates of high paid employees to not highly paid employees.

To answer your specific question, Roth deferrals are NOT excluded from testing. Catch-up contributions (both pre-tax and Roth) are excluded however.

bhradbh
Posts: 20
Joined: Thu Mar 16, 2017 2:22 pm

Re: Are 401K Roth contributions be excluded in the 401K fairness test?

Post by bhradbh » Mon Apr 16, 2018 2:34 pm

Are after tax contributions included in that test?

Spirit Rider
Posts: 9173
Joined: Fri Mar 02, 2007 2:39 pm

Re: Are 401K Roth contributions be excluded in the 401K fairness test?

Post by Spirit Rider » Mon Apr 16, 2018 6:46 pm

bhradbh wrote:
Mon Apr 16, 2018 2:34 pm
Are after tax contributions included in that test?
They are subject to a separate Actual Contribution Percentage (ACP) test even in a safe harbor 401k plan.

vbn
Posts: 29
Joined: Sat Jul 01, 2017 9:24 pm

Re: Are 401K Roth contributions be excluded in the 401K fairness test?

Post by vbn » Mon Apr 16, 2018 7:24 pm

Thank you everyone for your answer. I guess my best option is to use the distribution check and put it in my taxable account.

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