At CrossPlans our goal is to provide our clients with the latest retirement plan ideas and technologies in order to develop effective and empowering strategies. Our commitment is to stay contemporary with the always evolving retirement plan climate and to bring that knowledge to our client's service.


2018 Cost of Living Increases

On Thursday, October 19, 2017, the Internal Revenue Service announced the cost-of-living adjustments that will be applicable to the dollar limits applied to tax-qualified retirement plans for 2016.

IRS Announces 2018 Limits

2017 Cost of Living Increases

On Thursday, October 27, 2016, the Internal Revenue Service announced the cost-of-living adjustments that will be applicable to the dollar limits applied to tax-qualified retirement plans for 2017.

IRS Announces 2017 Limits

Why Sponsor a Qualified Retirement Plan?

There are a number of reasons why an employer would consider sponsoring a qualified retirement plan. Those reasons include:

  • A better, more productive employee work force.
  • A significant contribution to the social well being of America.
  • Their own wealth accumulation needs.

We have all heard the discussions of the inadequacies of the Social Security system and the growing demands of a large number of retirees. Working people are rightly concerned about how they are going to fund their retirement years. Their life expectancy has grown measurably longer than their parents and grandparents and the cost of living continues to escalate. These types of financial concerns often weigh on workers and distract them from their full productive potential.

Qualified retirement plans are one of the first things prospective employees consider when they are investigating new employment. For both the existing employee and the prospective new hire, a retirement plan begins to address the concerns of, “How can I begin to manage the wealth accumulation needs of my future?” By providing a retirement plan, the sponsoring employer is helping their own employees answer this question and contributing to the overall savings discipline of the country.

Most business owners have spent years developing their businesses. They have invested their time, their energy and their money in creating businesses that provide employment that helps their fellow citizens and fuels the American economy. Many have had little time or spare income to accumulate wealth and secure the future for themselves and their families. Sponsoring a qualified retirement plan creates a context within which the Employer and Plan Sponsor also can begin to secure their future needs. Business owners can often create plans that provide significant contributions for themselves while maintaining reasonable employee costs.

The simple answer as to why to sponsor a qualified retirement plan, is that it is the right thing to do. Right for employees, right for the economy and right for the business owner and plan sponsor.

Planning for a secure retirement is a significant challenge.

Congress has long recognized the difficulty of saving, particularly on a long-term basis for retirement. As a consequence, Congress has provided significant opportunities to create savings by dedicating a portion of the Tax Code to outlining how this can and should be done.

What are those advantages?
  • The basic premise is that retirement plans enjoy favorable tax treatment.
  • Employer contributions to retirement plans are tax-deductible as are the costs of maintaining the plan.
  • Neither the plan nor the participants pay current taxes on either contributions or investment earnings.
  • Participants are not taxed on their benefits until they receive those benefits as distributions.

These advantages allow contributions and earnings to compound at a faster rate in a tax-deferred environment than would be possible in the absence of a retirement plan.


New Law Provides Further Protection for Retirement Plan Assets

One of the many advantages of retirement plans is that the benefits of those plans are protected from creditors in the event of bankruptcy. Unfortunately, some plans have not been eligible for this protection and in other cases the extent of the protection has been a source of confusion and litigation. For example, assets held in IRAs have had little to no protection under federal law while sometimes being protected (or partially protected) under various state laws.

Effective October 17, 2005, when the new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) goes into effect this situation will change.

Which Plans Will Be Protected Under the New Law?

The new law provides clearly defined protection from creditors for the following kinds of retirement plans:

  • Qualified retirement plans under Internal Revenue Code Section 401, this will include 401(k) plans, profit sharing plans and defined benefit plans.
  • 403(b) and 457 plans provided by Governmental and exempt organizations.
  • Traditional IRAs.
  • SIMPLE Plans.
  • SEPs.
  • Roth IRAs.

Except in the case of IRAs, there is no limit on the amount of assets that may be protected in the event of bankruptcy. IRA assets attributable to an individual’s own contributions are subject to a $1,000,000 limit. This limit, however, does not apply to IRA assets attributable to employer retirement plan contributions (including employee 401(k) contributions) rolled over or transferred from eligible employer sponsored plans listed above. For example, if you transfer $1,000,000 from a profit sharing plan to an IRA and that amount grows, with investment income, to $1,500,000, the full $1,500,000 is protected from creditors.

Clearly, keeping clear records of roll-overs and transfers is key to preserving the maximum protections

Qualified Plan

Any plan that has received a favorable determination letter from the Internal Revenue Service will be presumed to be a qualified plan. Plans that do not have favorable determination letters must demonstrate that:

  • Neither the IRS nor a court has made a prior determination that the plan is not qualified under Section 401 of the Code.
  • Either the plan is in substantial compliance with Section 401, or the plan is not in substantial compliance with Section 401 but the debtor is not materially responsible for that failure.
Extended Protection

Although somewhat ambiguous, creditor protection has always been a significant advantage of retirement plan savings. This new law will not only continue to protect retirement plan assets from creditors in bankruptcy proceedings, but will also extend the protection to situations not previously covered by prior law. Asset protection remains one of the many significant advantages of qualified retirement plans.

401(k) Hardship Withdrawals

Beginning in 2006, the reasons permitting safe harbor 401(k) hardship withdrawals have expanded. This may make 401(k) plans more attractive to participants, plan sponsors, however, will need to take steps to facilitate and implement these changes.


401(k) plans may include provisions allowing “in-service” distributions of employee, pre-tax contributions if a plan participant can demonstrate sufficient financial hardship based on delineated criteria. Plans had to base the determination of “financial hardship” on facts and circumstances or they could adopt a “safe harbor” definition which reduced the administrative burden of processing the distributions.

Under the safe harbor rules prior to 2006, there were four circumstances that were deemed to be financial hardships:

  • Medical expenses for the employee, the employee’s spouse or dependent.
  • Purchase of a principal residence of the employee.
  • Tuition and related educational fees for post-secondary education for the employee, the employee’s spouse, children or dependents.
  • Payment to prevent eviction from the employee’s primary residence or foreclosure on the mortgage on the employee’s primary residence.
New Rules

Final 401(k) regulations were issued in 2005. These regulations, which are effective for plan years beginning after December 31, 2005, add two additional situations that may be deemed to be financial hardships under the safe harbor rules:

  • Funeral expenses of parents, spouse, children or dependents of the employee.
  • Certain expenses relating to the repair of damage to the employee’s principal residence that would qualify for the casualty deduction, such as those resulting from a natural disaster.

In order to add these two new safe harbor provisions, the plan document must be amended to include the changes. This amendment needs to be adopted by the end of the plan year in which any hardship distributions are made based on the two new criteria. In addition, administrative forms need to be revised to reflect the requirements of the new regulations.

Contact Us

Revised hardship withdrawal application forms are available upon request.

We will prepare plan amendments for those of our clients who need these document changes. These amendments will include all changes required by the final 401(k) regulations. If the plan currently provides for safe harbor hardship withdrawals, the amendment will add the two new provisions.

Calendar Year Plans: For plans that operate on a calendar year, we will send the required documents so that they can be signed by the December 31 deadline.

Non-Calendar Year Plans: For plans that operate on a year that is not the calendar year, we will send the required documents so that they can be signed by the last day of the plan year. These off-calendar year plans have the option of adopting the new rules early—that is, prior to the first day of the plan year. There is an earlier amendment deadline for those plans wishing to implement the new rules sooner.

Roth 401(k) Plans

Beginning in 2006, 401(k) plans will allow employees to designate some (or all) of their elective contributions as Roth 401(k) contributions

Roth 401(k) Contributions

Traditional 401(k) contributions are excluded from an employee’s taxable income in the year they are made but the account balance, including earnings, is taxed as ordinary income when it is distributed.

On the other hand, Roth 401(k) contributions are not excluded from an employee’s taxable income in the year they are made. However, distributions of these contributions, along with their investment income will be tax free.


Which is better? That answer depends on several variable including, the age of a participant, yield on investments, present and future tax rates as well as other factors that may be considered. Please view our comparison calculator. This calculator will allow you to compare the after-tax amounts that will be available at retirement under both types of 401(k)s, using assumptions that you choose.

Roth 401(k) versus a Roth IRA

There is no income threshold for a Roth 401(k)—all participants can contribute regardless of how much money they make. An individual can contribute to a Roth IRA only if his or her income does not exceed a threshold amount.

An individual can contribute up to $5,500 to a Roth IRA in 2016 (subject to the income threshold rules). This amount may be adjusted for cost-of-living increases thereafter. If the individual is age 50 or older in 2016, he or she can make an additional $1,000 “catch up” contribution.

In a Roth 401(k), the contribution limits are significantly higher: up to $18,000 in 2016 plus an additional $6,000 for those age 50 or older. These amounts may be adjusted for cost-of-living increases thereafter.

What must a plan sponsor do if they want to offer Roth 401(k)s?

Plan documents need to be amended to allow for Roth 401(k) contributions. These amendments will need to be adopted prior to making any Roth 401(k) contributions.

Employees must also designate a portion of their 401(k) contributions as Roth 401(k) contributions. Plans will need to have election forms available for participants to do this. Payroll systems must also be able to handle the Roth 401(k) contributions.

Roth 401(k) contributions must be accounted for separately from pre-tax 401(k) contributions. The plan’s record keeper must be prepared to track these separate accounts.

What other requirements will a plan have to meet?

Roth 401(k) contributions must be combined with pre-tax 401(k) contributions for purposes of the actual deferral percentage (ADP) test.

The combined Roth 401(k) and pre-tax 401(k) contributions for any individual cannot exceed the annual maximum ($18,000 in 2016 plus an additional $6,000 catch up contribution for individuals age 50 and older.)

  • All contributions must be non-forfeitable.
  • Accounts are subject to the same distribution restrictions as pre-tax 401(k) accounts.
  • Distributions can only be made upon termination of employment or in cases of financial hardship.
  • Required minimum distributions must be made to individuals age 70½ and older (or, in the case of a non-5% owner, at termination of employment, if later).
  • The plan must provide that Roth 401(k) contributions may be rolled over only to another plan that allows Roth 401(k) contributions or to a Roth IRA.
  • Employers will be able to make matching contributions with respect to both Roth and traditional 401(k) contributions. Matching contributions are treated the same as under current law regardless of whether they are based on Roth or traditional 401(k) contributions.