Corrective Refunds | Avoiding Unexpected Tax Bills | Trust Point
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Corrective Refunds

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Updated May 21, 2019

Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.

No one likes to have an unexpected tax bill at the end of the year. Prudent advice encourages people who participate in a 401(k) plan to contribute as much as possible.  However, highly compensated employees, including business owners themselves, are shocked to hear they may not be permitted to contribute as much as they wanted.

Unfortunately, the employees and business owners are surprised when they receive a refund for the amount they overpaid.

In fact, this is quite common and you may have experienced this yourself at one time or another.

Plan sponsors participating in traditional 401(k) plans must test their plan each year to ensure that highly compensated employees do not contribute disproportionately more to the plan than the non-highly compensated employees.  The testing extends to employer-matching contributions to confirm that highly compensated employees do not benefit disproportionately from contributions. The plan then distributes the excess contributions on a form 1099-R.  This amount must be reported as income on your tax return; which could cause additional issues to arise.

Unexpected corrective refunds can be avoided and solutions are available.

When it comes to 401(k) plan design, our goal is to have you feel confident in knowing where you stand to avoid these untimely surprises.  We provide retirement plan services to help reduce your burden and potentially save you money. Plan design is more than choosing from a list of features. It requires getting to know your organization and understanding the unique challenges your participants face. It also requires specialized expertise in managing the compliance testing, government filings and other reporting requirements that you’ll face.  Trust Point will work as your advocate looking out for you and your plan’s best interest, putting your mind at ease.

Give us a call today at 800-658-9474 and let us help you design a 401(k) program that works best for you.

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Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.