As you may be aware, you must complete a funding form to receive your annual funding range. Once this form is completed, we will give you a funding range. This range will include a minimum, maximum, and recommended funding amount.
While we always encourage clients to fund at the recommended level, each client has the ability to overfund or underfund based on an IRS tolerable amount. This range should give you considerable flexibility.
But what happens if the range looks too high or too low? There are a few items that you should consider to make sure that your range properly is calculated.
Here are several items you should consider if you are looking to get your funding range higher:
- Do you have your spouse on payroll? Assuming your spouse works for the business, if they are on payroll you can give them a contribution.
- Is your W2 wage too low? Consider amending your W2 to get it higher. You can consider a W2 as high as $330,000.
- Does your funding range consider any plan amendments that were made for 2023? For example, your plan might have been amended to allow a pay credit equivalent to 200% of your W2?
- Consider funding 25% of your W2 into your 401k profit sharing and then 6% into the defined benefit plan. This will free up future funding.
- Was health insurance included as compensation? If your W2 includes health insurance you may be able to increase your compensation as a result.
Here are several items you should consider if you are looking to get your funding range lower:
- Is your W2 wage too high? Consider amending your W2 to get it lower. Because plan contributions are largely driven by compensation, this will typically decrease your contribution.
- Did you work 1,000 hours during the year? If you worked less than 1,000 hours, you would likely have not earned a benefit for the year. As a result, this can likely substantially reduce the minimum funding amount.
- The 401(k) employer profit-sharing contribution is discretionary each year. So this would be a good year to skip the profit sharing contribution.
- The 401(k) deferral is voluntary, it is possible you have already made this contribution for 2023. But, if you are a sole proprietor or partnership then this could also be a contribution that you skip this year.
- You have until September 15th to make the full cash balance contribution before the IRS would consider the plan deficient. Filling an extension would give you more time to fund the plan, and still take the deduction on your 2023 tax return.
- Did you amend the plan to reduce the contribution percentage? It is possible that we did not consider your amendment when we ran your funding range.