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401K Plans - Secure Act 2.0 from Bad to Worse Highly Compensated Employees (HCE)

(The short as I could make it version)

First the Bad.

If you’re one of the highly compensated employees HCE (wages over 135,000 in 2022), I would assume you’re already familiar with the non-discrimination testing and how it usually, at least in the automobile dealership world, limits your ability to reach the maximum 401K contribution of $20,500, 2022. Most of the car dealerships I see have non-discrimination tests that max out the HCE at about $4,500 or so. If you contribute over this test limit amount, you will have your excess contribution amount given back to you and form 1099 to file with your tax return. The 401K plan non-discrimination testing was designed by the DOL/IRS to put pressure on the business owners and HCE to make larger contributions for all of the regular employees, i.e., safe harbor contributions. However, I have not seen this occur too often because the contribution would be too high. This is primarily due to poor employee participation in the 401K plan. So, the highly compensated employee, the ones that usually can afford to put more away more for themselves, can’t contribute as much as they’d like. Well, at least if you are age 50 or older, you can still make the tax savings catch-up contribution without having to worry about the limit, but not for long!

If the top heavy testing limit wasn’t “Bad” enough for the HCE, the new Secure Act 2.0 only allows you to use your catch-up contribution for a Roth contribution, meaning no tax deduction, the “Worse” part. Really!!! Hopefully, you’re aware of the age 50 catch-up not being subject to the HCE top heavy limit and use it. You’ll have this tax savings available to you for 2023, but after that, the new Act kicks in. The wage amount would be $145,000 for the 2.0 Secure Act. The next question is, what if your 401K plan doesn’t have a “Roth” option as they are not required to have one, “worse” news again. Let’s hope the plan gets amended to include the Roth in time as we still have time and that your plan’s advisor, someone like me, hint hint, notices.

The catch-up contribution is going up, and if you are 60 to 63 years old in 2025, the catch-up contributions will be the greater of $10,000 or 50% more than the regular age 50 catch-up amount. If you’re not a highly compensated employee, then your treatment is the same as it’s been, pre-tax, with larger catch-up contributions available to you in the future, 2025, and beyond.

The employer could elect a “save harbor” provision for the 401K plan. The safe harbor employer contribution will bring the regular employees’ contributions up to 3% to 5%, depending. This avoids the non-discrimination testing but does cost the company in terms of higher employer contributions, and it’s vested 100% when made. Thus, it might not be a good fit for the company, cost-benefit rule. There are other alternatives, but that would have to be explained in another blog post.

NOTE:   The Secure Act 2.0 will be effective for 2024 for HCE for Roth only catch-up contributions, an increased Catch-up contributions will be effective for 2025.




As always, seek the advice of your financial professionals before implementing any method on your own.

BY: Ken Gibbons, CPA & CPFA

NJ ANCHOR – NJ Property Tax Relief Program (R/E Tax Rebate)

(The short as I could make it version)

The State of NJ is giving out property tax relief money!

BUT you must apply for it by December 31, 2022!!!  So don’t miss out!

You’ll get your check or direct deposit in the Spring of 2023 no later than May 2023.


Homeowners (NJ) – if on October 1, 2019, you

  1. Owned a house
  2. Owned a condominium & paid property taxes on it
  3. A resident of continuing care retirement community & required to pay a share of property taxes.

Tenants – if on October 1, 2019, you:

  1. Rented an apartment, condo, or house.
  2. Rented or owned a mobile home in a mobile home park.

Payout amounts:

  1. Homeowners with an Income of $150,000 or less receive $ 1,500
  2. Homeowners with an Income of $$150,000 to $250,000 will receive $ 1,000.
  3. Renters with incomes of $150,000 or less will receive $ 450.

For Additional information, visit:

General Information

NJ Division of Taxation – ANCHOR Program


NJ Division of Taxation – ANCHOR Program – Frequently Asked Questions (FAQs)

Apply online-

ANCHOR Benefit Welcome – NJ Taxation (

As always, seek the advice of your financial professionals before implementing any method on your own.

BY: Ken Gibbons, CPA & CPFA

401K Plans - Quarterly -Timely Enrollment for Eligible Employees & Preliminary Non-Discrimination Testing

(The short as I could make it version)

Those of you in charge of the company 401K plan, please make sure the newly eligible employees get enrolled in the plan and that the preliminary mid-year non-discrimination testing is completed. Hopefully, your plan’s third-party administrator, TPA, is on top of this, but ultimately it’s your responsibility. Yes, you read that right. Most TPA/recordkeeper agreements have language in their documents, making you the final responsible party. Also, not providing them with the necessary, accurate, and timely information is on you as well. If you’re unsure of what’s needed most TPA’s will assist you with this process.


Every plan has different eligibility criteria. Generally, it’s one year of service and at least 21 years of age. The entrance dates are usually the first day of the quarter or month. It’s up to you to ensure all newly eligible employees are offered Enrollment into the plan. They can decline it if they want, but you’ll need proof it was offered to them. Most TPAs will have an online login for this process. This is an excellent way for the company to build loyalty and connect with its employees. Another reason to make sure new Enrollment is implemented is for the non-discrimination testing.

Non-Discrimination Testing

Depending on your agreement with your provider, non-discrimination testing should be done periodically during the year to keep highly compensated employees from overcontributing. If this isn’t caught early, the highly compensated employees will have to get a taxable refund of their over contributions. Basically a reversal of the contributions. TPA will tell you and show you the access contributions results, but it’s not automatically done. You’ll need to authorize the access contribution refund-reversal. Another option would be for the employer to make additional contributions to bring up the contributions of the non-highly compensated employees in order to pass the test.

Employee Investment Education

When new employees enter the plan, it’s a good idea to have your advisor give an investment and plan educational class. It will make your employees feel more comfortable about their retirement and grow that all-important employer-employee relationship.

As always, seek the advice of your financial professionals before implementing any method on your own.

BY: Ken Gibbons, CPA & CPFA

Times Up NJ Employers !!!
with 25+ Employees -
NJ’s new Retirement Plan Requirement

(The short as I could make it version)

NJ Secure Choice Savings Program Requirement or Retirement Plan

Starting March 28, 2021, certain employers must participate in a retirement plan or NJ’s “Secure Choice Savings Program” if they do not already have a retirement plan in place. The program/plan should begin on March 28, 2021, and the employer must enroll the employees in the Program by the end of 2021. If you’ve read between the lines you could put off on setting up a retirement plan until 2022 because in 2021 you would only get a “warning” if you have not set up a retirement plan for your company, BUT times up in 2022!!!

Required Employers have the following facts:
   • Have had no fewer than 25 employees during the past calendar year.
   • Employer was in business for at least two years.
   • Either non-profit or for-profits organizations.
   • If they do not wish to have their own plan, they must use NJ’s “Secure Choice Savings Program.”

Non-Compliance – those that do not adopt a plan or use the Program in the first year receive a “warning.” If non-compliance continues into the second year, it’s a fee of $100 for each employee not enrolled or opted out. The fine is $250 each for the second, third and fourth year and $500 for the fifth and thereafter.

Employers are required to automatically enroll employees for a contribution of 3% if the employee does not opt out. The contribution limit is $6,000 per employee, just like an IRA. Employers can not contribute any money toward the Program for the benefit of the employees as a match or profit-sharing contribution.

The next point to clarify is that the Program is NOT a bank account NJ used the words “Saving Program” the employee contributions will be put into investments!!! NOT FDIC bank account!!! Why NJ put savings in the name is beyond me; it’s not really accurate or appropriate IMO.

If you’re required to put the Program into action and want the least amount of liability exposure, the NJ program is right for you. However, if you want a plan that can be adjusted to your company’s wants and needs, consider starting your own plan. Do not wait until the end of the year because all the other procrastinators will cause an influx of activity. Also, note that although an employer can wait until 2022 to make a tax-deductible contribution to the plan, the plan must be in effect in 2021!!! Just another reason not to wait and risk missing out on a tax deduction.

Also See Blog Post: New Retirement Plan Tax Credit.

Here’s a link if you want more details

BY: Ken Gibbons, CPA & CPFA

401K Plans March 15th Deadline

(The short as I could make it version)

Those of you in charge of the company 401K plan, just one of the many hats you wear, the annual testing is due by March 15th. Thus, it would be best to search your email for your TPA’s request for the necessary information and send it to them. There are, of course, 10% excise penalties on any highly compensated employee refunds needed to bring the non-discrimination test back in line that occurs after the fact.

It would be best if this did not happen, but that’s not always the case. For example, maybe someone earned a bigger bonus this year, which pushed them over the limit and now qualify as an HCE, highly compensated employee. Of course, the company can make a “Safe Harbor” contribution, but frankly, I don’t see this happening too much with the plans I’ve audited in the past, and out went the HCE refunds.

However, now is an excellent time to remind your age 50 and over employees that they can contribute an additional $6,500 to the plan. This catchup contribution amount doesn’t even count toward the non-discrimination test. Thus, an employee aged 50 and over can contribute $20,500 plus $6,500 if their wages are enough to cover it. Also, note the catchup is available to them as long as they’re 50 by the end of the calendar year.

As always, seek the advice of your financial professionals before implementing any method on your own.

BY: Ken Gibbons, CPA & CPFA

First Time/New Retirement Plan Tax Credit in 2022, Get a Tax Credit of up to $5,000 for 50% of your Plans Cost

(The short as I can make it version)

If the government will help cover some of your plan costs, you might consider opening a new, first-time retirement plan.

Suppose you are a New Jersey Business owner. In that case, this credit could influence your 2022 decision as most New Jersey Business owners are required to start a retirement plan or enroll their employees in the  New Jersey Secure Choice Savings Program. See my article “NJ’s new Retirement Plan or NJ Program Requirement,” scroll down my blog page and come back.

This cost reduction could make having a plan more affordable. Having your own plan vs. a State plan, will allow you to control the plan, to an extent, which will best enable you to retain your employees and help them invest for retirement.

 The tax credit will apply for the ordinary and necessary costs of starting a SEP, SIMPLE IRA, or qualified plan (like a 401(k) plan.) Eligible costs are set up & administration and to educate employees about the plan. The tax credit reduces the amount of taxes you may owe at the end of the year.

Eligible Employers

  1. Your company has less than 101 employees who individually earned at least $5,000 in compensation from you last year.
  2. The company had at least one employee that earned less than $130,000. (highly compensated individual)
  3. In the last three years, your employees weren’t in another plan run by you or your control group. (basically, your company didn’t have a plan in the past three years, or less if you’re a new company).

So the tax credit calculation is the greater of:

  • $500 or
  • The lesser of $250 per employee (excluding highly compensated employees) or $5,000.

         AND: Limited to 50% of the plan’s costs!

There is an additional $500 credit if you add “Auto-Enrollment” to the plan.


Your company has 30 employees, and the plan costs are $3,500.

Number of employees 30 X $250= $7,500; the max is $5,000.

And auto-enroll is an additional credit of $500.

The plan cost is $3,500 X 50%= $1,750.

On your tax return you will get of credit of $2,250   ($1,750 + $500).

Net Employer plan cost 3,500-2,250 = $1,250.

This will reoccur for a three year time period, grand total saved $6,750  (2,250X3)

Thus, the tax credit could very well influence your decision to start a new retirement plan for your company. In addition, everyone, including you, the owner, will save on your federal and state taxes based upon your contribution to the plan.

The extra-long IRS version is here: 

 Retirement Plans Startup Costs Tax Credit | Internal Revenue Service (

BY: Ken Gibbons, CPA & CPFA

Types of Investment Providers for Your Company's 401(k) Plan

(The short as I can make it version)

Attention New Jersey Business Owners. You have three types of investment providers for your plan: a broker, a Section 3-21 investment fiduciary, and a Section 3-38 investment manager fiduciary.

  • The broker provides the investments that a business owner requests, and no more. They don’t give investment advice.
  • Section 3-21 investment fiduciary provides investment recommendations. However, the plan’s fiduciary, the business owner, decides which investments are included in the plan.
  • Section 3-38 fiduciary is an investment manager who decides on the investments for the plan, business owner.

Investment Providers Responsibility & Liability

When using a Broker, the plan sponsor or business owner takes full responsibility for the investment selection. They also take on the ongoing responsibility to monitor the performance of the investments in the plan.

Section 3-21 investment fiduciary provides recommendations and is therefore partially responsible. However, since the business owner still makes the final determination, they still retain most of the responsibility. Thus, both parties should monitor the investments’ performance to prove they are acting in the participants’ best interest.

Finally, the Section 3-38 investment manager fiduciary takes on nearly all the responsibility as they make all the decisions and are responsible for monitoring the investments’ performance. Therefore, the business owner must explain the hiring decision and monitor the fiduciary’s performance.

A 3-38 fiduciary protects the business owner from much of the investment liability as possible. However, the business owner is still responsible for overseeing the plan and can never completely avoid liability. There is a cost to this higher level of service to the plan.

There are benchmark reports that can compare your current plan costs and services to the industry’s costs for the same services.

BY: Ken Gibbons, CPA & CPFA

Business Expense Receipt Recordkeeping

(The short as I can make it version)

Attention New Jersey Business Owners. Let’s go over the topic of expense receipt recordkeeping, fun right. Well, congratulate yourself for wanting to track your costs. Who wants to keep the IRS away or at least make their visit as short as possible. Wow, everyone’s hand went up, including mine!

The biggest takeaway is this – your business credit card statement is NOT proof of the expense. You must keep the receipt, whether it’s by the cash register or email. Email is easier to print to PDF and put in your expense file. However, that little receipt from the cash register, which is almost impossible to read sometimes, must be retained. OK Ken, and how do we do that!

I’ve used two different methods. First, I would save the receipt, and when I got home, I would tape it to a piece of paper, date it, and rewrite any illegible part. Next, I’d take a picture of it with my laptop and put it in my expense folder. The second method is an app. My accounting software has this feature where you take a picture of it through the app, and it will go into my accounting software. I highly suggest doing this on the spot so you don’t forget about it. Either method can work depending on your accounting software and the type of person you are or the app you feel comfortable using. If using an outside source app or even accounting software, be careful if you ever change providers. Find out how to download your prior receipt/data history ahead of time.

It would be best to address the record retention periods with your CPA or accountant as there are different time periods for each type of record to be retained.

BY: Ken Gibbons, CPA & CPFA

Top Two Tasks for 401K Plan Fiduciaries

(The short as I can make it version)

As a New Jersey Business Owner, the top two ways you can demonstrate that you acted in the “Best Interest” of the participants is to retain the documents you used to make the decisions you made and why you made them. A benchmark report can fulfill one part of that requirement. The business world has changed so much in the past year, and most of that change is in your favor.

When was the last time the plan received a benchmark report on its investments and plan fees? If it has been more than a year or two (or more), this year is a great time to get one.

Task #1: Benchmark the plan’s investments and fees.

The benchmark report compares your plan’s costs and investment performance to others in the marketplace. The financial industry is seeing a reduction in fees at all levels, so it’s essential to have a current benchmarking report created.

Task #2: Document the findings of the benchmark report.

You’ll need to “show that plan costs are reasonable,” per ERISA, and that the participants are getting the best service for the cost. The cheapest is not always the best. Make sure you have a report that can be used as documentation of your decision. But it does not end there. You’ll have to explain “why” you made those decisions for your company’s plan.

Hopefully, you and your plan advisor have fulfilled this 401K fiduciary responsibility. If not, I would strongly advise you to consider having your company’s plan fees and investments benchmarked this year.

Consider asking your retirement plan advisor about your 401K fiduciary responsivities if you are in doubt. A Fiduciary Checklist is another good way to document your actions as a fiduciary.

BY: Ken Gibbons, CPA & CPFA

New Jersey Business Owners with 401(k) Plans be Careful, What you don’t know can Hurt You, Personally Too!!!

(The short as I can make it version)

Most New Jersey Business Owners have 401k plans so their employees can invest for their retirement. The plan also helps employers attract the best employees. Everyone wants to be helpful, and that’s understandable. However, there are times when you probably shouldn’t be so helpful. Maybe you were just not aware that your well-intended action made you liable.

Need an illustration of what could go wrong? Suppose one of your employees just became eligible to contribute to the plan and asks you some questions since you’re in charge. You email him the information. A week later, you get more questions, this time about investments and what to invest in. Finally, you provide him with some selections.

Bam!!! Now you’ve just become an “inadvertent investment advisor,” and you’re liable for the selections you provided. Fiduciaries are “personally” responsible for their actions, lack thereof, or in this case, inadvertently. Depending on how your plan is serviced, the employee should at least get investment education. This should enable him to make investment decisions on his own.

What should you do? Make sure you’re educated regarding your fiduciary responsibilities. Fiduciary education will address many of the areas of responsibility so you can adequately document your actions and act accordingly.

You might be thinking the plan has a fidelity bond in place, but that’s for theft and fraud, not fiduciary insurance. As a fiduciary, both the company and you personally are liable for your actions or lack thereof. Therefore, all New Jersey business owners should consider fiduciary insurance to cover any liabilities.

Consider asking your financial professionals about your fiduciary education and any responsibilities if you are in doubt.

BY: Ken Gibbons, CPA & CPFA

Investment Tax Loss Harvesting, a Federal & NJ Approach

Ken Gibbons, CPA & CPFA

If you have a taxable, non-retirement plan, investment account you should consider the power of harvesting investment losses. Why? To pay less tax, of course. Generally, you want to take the losses to offset other investment gains or create a tax-deductible loss. Some investment funds or software can do this “on purpose,” and you might be able to turn this feature on and off at will to arrive at the “loss figure” you planned on. There are funds and software available that can assist you with this method. To do this, a stock needs to be sold, which is currently in a loss status. Overall, you don’t really want to get out of this position because you should be investing for the long term. But they will sell it and replace the stock with another similar stock. So, ultimately you are in the same investing position. You just switched the stocks that cover that portion of your portfolio. But there’s always a catch. The stock can not be so similar that a “wash sale” occurs. The IRS has figured out this strategy as well, not a surprise, and will not allow the sale of the stock only to repurchase the same stock 5 minutes later. Thus, the created loss will basically be avoid. So, the stock would have to be out of your portfolio(s) for 30 days. The investment fund knows this and or has software that will purchase a stock that avoids the wash sale rule but covers your portfolio position appropriately.

Note the losses have some limitations. You can offset the capital loss against other capital gains completely, but if your losses exceed the gains, you will be limited to a capital loss of $3,000, federal. If the amount goes over $3,000, they will be carried forward to the following year. However, the state, NJ, is not so kind. NJ will not allow a net loss. You are only allowed to offset the loss against other capital gains in that year for that year. NJ will not allow you to carry the capital loss forward either, so you will lose the loss, unfair but true. So, you will also have to weigh the NJ tax calculation into the equation as well. Also, NJ does not have a “capital gains” tax rate; it is taxed as income.

Tax-loss harvesting can be helpful in several different circumstances, and preplanning would be the best course of action. If you take the federal and NJ tax rate and calculations into account, this method could work out well for you, depending upon your income level.

As always, seek the advice of your financial professionals before implementing any method on your own.

BY: Ken Gibbons, CPA & CPFA

Ken Gibbons has “Graduated” from Plan Confidence University!

 Ken Gibbons has completed an intensive four-week training course on compliantly delivering ongoing, personalized advice to anyone contributing to an employer retirement plan, 401k, through “Plan Confidence University”. 

Very few advisers in the country know how to compliantly deliver personalized, ongoing advice due to the complex rules created by the Department of Labor.  Today, Ken Gibbons, is one of those few advisers who can help!”  – Kevin T Clark, RF™ CEO & Co-Founder of Plan Confidence Corporation.

“Our clients have been demanding advice for their 401k and 403b plans for quite some time.  I am glad that I now have the knowledge and software necessary to help my clients maximize their plans.  This is a game-changer for my firm and for all the participants contributing to their plans.

Ken Gibbons, CPFA, CPA

Ken Gibbons, CPFA, CPA


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