The IRS is doing its part to ramp up automatic enrollment 401(k) plans. It recently posted a sample notice on its web site that employers can use to meet safe-harbor requirements.
Here’s the skinny: An auto-enrollment 401(k) encourages greater participation among the rank-and file because it requires employees to proactively opt out of the plan instead of the other way around. The Pension Protection Act of 2006 liberalized the rules for this feature.Under a safe-harbor plan, employees must be notified in writing about the auto-enrollment feature.
An employee covered by a safe-harbor plan has a 90-day window to withdraw his or her auto enrollment contributions. The new sample Notice provided by the IRS explains that the employee must pay income tax on the funds, but not the10% tax that usually applies to early withdrawals.You can find it at www.irs.gov/pub/irs-tege/se111507.pdf.
Tip: This provision also can benefit employers that might otherwise have to maintain numerous accounts with small balances if employees weren’t able to take early withdrawals.
- Small Business Tax Deduction Strategies No matches