Blog 3: RMDs, Contributions, and Deadlines – Don’t Miss These Important Tasks!
As the year comes to a close, plan sponsors need to stay on top of several critical deadlines related to Required Minimum Distributions (RMDs), contributions, and compliance.
Missing any of these deadlines can result in penalties and tax consequences for both the company and participants.
Let’s dive into the most important deadlines to ensure a smooth year-end process.
Key Tasks:
Required Minimum Distributions (RMDs)
- Why it matters: Participants aged 73 and older are required by the IRS to take RMDs from their 401(k) accounts before December 31st.
If these distributions are not taken on time, participants face a 25% penalty on the amount they should have withdrawn.
As the plan sponsor, it’s important to ensure that all eligible participants are aware of this requirement and have taken the necessary action. - Action step: Work with your recordkeeper to identify participants who are required to take RMDs.
Reach out to these individuals to remind them of the upcoming deadline and assist them in arranging their distributions.
Having a clear process in place for tracking RMDs will help avoid unnecessary penalties and ensure compliance.
- Why it matters: Participants aged 73 and older are required by the IRS to take RMDs from their 401(k) accounts before December 31st.
Employee Contributions
- Why it matters: One of your key fiduciary duties is to ensure that employee contributions are remitted in a timely manner.
The Department of Labor (DOL) requires that employee contributions be deposited into their 401(k) accounts as soon as administratively possible after they are withheld from payroll.
Failing to meet this requirement can result in penalties and interest charges. - Action step: Review your payroll and contribution processes to ensure that all employee contributions are deposited promptly and accurately.
If you discover any delays or errors, work with your payroll provider to correct them before year-end.
Staying compliant with contribution deadlines will help you avoid potential penalties from the DOL.
- Why it matters: One of your key fiduciary duties is to ensure that employee contributions are remitted in a timely manner.
Employer Contributions
- Why it matters: If your company offers matching contributions or profit-sharing, it’s important to ensure these contributions are deposited before the year’s end.
These contributions can often be tax-deductible for the company, making them beneficial from a financial standpoint as well.
It’s also important to fulfill any promises made to employees regarding employer contributions. - Action step: Confirm the deadlines for employer contributions based on your plan’s design and your company’s fiscal year.
Work with your advisor or payroll team to ensure that all contributions are deposited on time and that the amounts are properly calculated.
This will help you meet both IRS and ERISA requirements, while also maintaining trust with your employees.
- Why it matters: If your company offers matching contributions or profit-sharing, it’s important to ensure these contributions are deposited before the year’s end.
Final Thoughts:
Year-end deadlines are critical for avoiding penalties and ensuring your 401(k) plan remains compliant.
By staying on top of RMDs, employee contributions, and employer matching, you’ll not only avoid costly mistakes but also demonstrate your commitment to your fiduciary responsibilities.
If you have any questions or need support navigating these tasks, I’m here to help ensure a smooth and compliant year-end process.