Failing 401k Testing or Returning Excess Contributions?

Offering a retirement plan to your employees is a wonderful benefit for them and you. But it doesn’t come without its fair share of problems. 

Right now, many businesses are facing the following problems:

  • Having to return excess 401k contributions to higher earning employees
  • Failing annual ADP and/or ACP 401k testing.
  • Difficulty attracting and retaining key employees in this challenging employment market

Here are 3 strategies businesses can use to help solve those problems including something called…the Mirror 401k!

  1. Offer a company match: There are many different types of match programs, one for every budget. It’s not surprising that when a company offers a match, we see higher participation and contributions: 
  2. Improve the education you are providing employees: If employees are not saving, it could be the education or lack thereof. Employee education is key to increasing participation. And if you don’t have the time for that, we can always set up an Auto Enrollment Program giving employees the gentle nudge they might need to save for their future. 
  3. Mirror 401K: This last option is unique and quite special. Offer an additional retirement plan that allows employees to contribute as much compensation as they want. I call it a “Mirror 401k” because it looks just like a 401k plan. A Mirror 401k Plan is a separate retirement plan that sits next to your 401k.

3 Highlights of the Mirror 401k:

  1. No limit to how much an employee can contribute to the plan each year… and it’s all tax-deductible.
  2. You won’t have to worry about passing annual testing because there isn’t any.
  3. Unlike a 401k, you don’t have to wait until age 59 ½ to withdraw the money. You can withdraw it for reasons like early retirement, college expenses, or a dream vacation to Hawaii. And there’s no 10% early withdrawal penalty!

Keep in mind: the rules are different and setup and design are more complex than your 401k so only work with someone with experience in setting up this type of retirement plan. 

If you’re interested in:

  • Seeing if a Mirror 401k is right for your company or…
  • Improving your current retirement plan or…
  • Improving your employee education program…

Reach out today to book a free consultation.

Book a Consultation


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Disclosures: This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment, tax, or legal advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.