Top Heavy 401(k) Plan

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 13, 2022

If a 401(k) plan is top heavy, it means that 60% or more of the assets in the plan are owned by "top employees." Top employees are those that are the most highly paid, and typically own 5% or more of their company and/or hold an officer position.

Top Heavy 401(k) Plan Consequences

If a 401(k) plan is determined to be top heavy, then the employer must make contributions to non-key employees in order to bring the plan back into balance. The contributions must be 3% of the employee's salary or the same as the highest contribution made to a key employee, whichever is lower.

Top Heavy 401(k) Plan FAQs

What is a 401(k) plan?

A 401(k) plan is a retirement plan offered by an employer designed to help employees save for retirement.

What is a top heavy plan?

If a 401(k) plan is top heavy, it means that 60% or more of the assets in the plan are owned by “top employees.”

What is the difference between a Roth 401(k) and traditional 401(k)?

With a Roth 401(k), taxes are paid as money is put into the retirement account. With a traditional 401(k), taxes are paid as money is taken out.

Are there other retirement savings plans other than a 401(k) plan?

Alternatives to 401(k) plans include traditional IRAs, Roth IRAs, pension plans (if your employer offers one), and 403(b) retirement plans for employees of non-profit organizations.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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