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I want to know whether I can negotiate my 401k contribution…

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I want to know whether I can negotiate my 401k contribution or whether all employees have to have the same plan. Also, what counts as compensation in determining whether I’m a highly compensated employee and thus at risk of having my contributions limited? Is it just salary and bonus, or also employer 401k contributions and HSA contributions?

Submitted: 3 months ago.Category: Tax
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Answered in 23 minutes by:
3/6/2018
Tax Professional: Lev, Tax Advisor replied 3 months ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,978
Experience: Taxes, Immigration, Labor Relations
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You may choose the amount of employee elective deferral - that is deducted from your wages and contributed into 401k plan.

That will be your choice.

The maximum salary deferrals - $18,500 in 2018 ($18,000 in 2015 - 2017), plus $6,000 in 2015 - 2018 if the employee is age 50 or older.

However - employer's matching contribution is not negotiable - and is based on plan's documents - same rules are for all employees.

The maximum what the employee may contribute is 25% of compensation.

That percentage is set the same for all employees.

The compensation is also defined in plan documents - so you may want to verify.

Most employers are using Safe harbor 401(k) plans which are required to use a definition of compensation that complies with IRC Section 414(s).

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Tax Professional: Lev, Tax Advisor replied 3 months ago

.

Some definitions of compensation automatically satisfy IRC Section 414(s). For example, a definition of compensation that includes all compensation within the meaning of IRC Section 415(c)(3) and excludes all other compensation automatically satisfies IRC Section 414(s). See Reg. Section 1.414(s)-1(c)(2). A definition of compensation within the meaning of IRC Section 415(c), with certain permissible modifications, also satisfies IRC Section 414(s). See Reg. Section 1.414(s)-1(c)(3), (4) and (5).

In addition, a definition of compensation within the meaning of IRC Section 415(c)(3) modified to exclude certain amounts that would be includible in gross income but for an election by the employee (such as elective deferrals) satisfies IRC Section 414(s).

Finally, any other definition of compensation generally satisfies IRC Section 414(s) if the definition meets three criteria:

  1. it does not by design favor highly compensated employees,
  2. it is reasonable within the meaning of Reg. Section 1.414(s)-1(d)(2), and
  3. it satisfies the nondiscrimination requirement set forth in the regulations. See Reg. Section 1.414(s)-1(d).

Examples provided by the IRS.

  1. A safe harbor 401(k) plan defines compensation as Form W-2 wages (that is, the amount shown in an employee’s W-2, Box 1, Wages, tips, other compensation), less reimbursements, fringe benefits, moving expenses, and welfare benefits. This definition satisfies IRC Section 414(s) because it complies with Reg. Section 1.414(s)-1(c)(3).
  2. A safe harbor 401(k) plan excludes overtime and bonuses from the definition of compensation. The definition will satisfy IRC Section 414(s) if it (i) does not by design favor highly compensated employees, (ii) is reasonable within the meaning of Reg. Section 1.414(s)-1(d)(2), and (iii) satisfies the nondiscrimination requirement set forth in Reg. Section 1.414(s)-1(d)(3).

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