Contributions

Each type of qualified retirement plan contribution is subject to specific plan provisions as well as IRS and DOL rules. For clarity, we’ll refer to each type of contribution as a “source.”

Depositing contributions into the wrong source can require corrective action to restore the plan to its proper position—a process that is often time-consuming and costly. To avoid errors, it’s important to identify the correct source before making deposits with the plan’s investment company.

Contribution Sources

Retirement plans typically include one or more of the following contribution sources. Each source requires separate recordkeeping:

Employee Contributions:

  • Pre-tax 401(k) or 403(b) Deferral Contributions
  • 401(k) Roth or 403(b) Roth Contributions
  • Rollover Contributions

Employer Contributions:

  • Safe Harbor Contributions
  • Profit Sharing / Nonelective Contributions
  • Matching Contributions
  • Prevailing Wage Contributions

Maximum Employer Contribution Calculations:

When employer contributions are made through payroll, it’s important to apply the plan’s annual maximum compensation limit to ensure allocations do not exceed allowable amounts.

Example:

  • For a plan year beginning in 2025, the maximum compensation limit is $350,000. A 3% safe harbor contribution for an employee earning above this limit would be capped at $10,500.
  • For 2026, the limit increases to $360,000.