< FAQs : What is a cross tested plan?
Cross-Tested Profit Sharing Plans allow the amounts allocated to participants to be "converted" to monthly benefits at normal retirement age for testing purposes - in other words, the plan is tested just like a defined benefit plan. Different allocation rates can be set for classes of participants. Typically, a cross-tested plan is designed to maximize the target employees at the $46,000 limit and minimize the cost for other employees. Depending on the plan design, the minimum amount required for non-highly compensated employees can range from 3% to 5% (assuming complex testing is passed.) Cross-tested plans are often combined with 401(k) features for maximum flexibility.
| Name | Plan Compensation | Age | Salary Deferrals | Safe Harbor / Gateway Contribution | Cross-Tested Profit Sharing Contribution | Total |
|---|---|---|---|---|---|---|
| Dr. Smith | $230,000 | 53 | $20,500 | $10,166 | $20,334 | $51,000 |
| Dr. Jones | $230,000 | 49 | $15,500 | $10,166 | $20,334 | $46,000 |
| Office Manager | $48,000 | 39 | - | $2,122 | - | $2,122 |
| Physician Assistant | $35,000 | 30 | - | $1,547 | - | $1,547 |
| Technician | $35,000 | 33 | - | $1,547 | - | $1,547 |
| Nurse | $22,000 | 27 | - | $972 | - | $972 |
| Office Assistant | $20,000 | 25 | - | $884 | - | $884 |
| Totals: | $27,404 | $40,669 | $104,072 | |||
| Dr. Smith and Jones receive over 93% of total contributions to the plan. | ||||||
Where they Fit:
- Professional Practices
- Small closely-held businesses
- Client does not wish to exceed the $46,000 ($51,000 if age 50 or older)
- Client desires flexibility in contributions