: Is a company allowed to give employees an option for a bonus to be paid out as a 401k match or cash? Imagine I'm a company with no 401k match. We do offer a sizable cash bonus however. Some employees are interested in instead

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I have worked for companies that have done this. One did have a match and the other did not. When they figured their profit at the end of the year a portion was given to the employees as a 401K deposit.

retirement-topics-401k-and-profit-sharing-plan-contribution-limits

Total annual contributions (annual additions) to all of your accounts
in plans maintained by one employer (and any related employer) are
limited. The limit applies to the total of:


elective deferrals
employer matching contributions
employer nonelective contributions
allocations of forfeitures


The annual additions paid to a participant’s account cannot exceed the
lesser of:


100% of the participant's compensation, or
,000 (,000 including catch-up contributions) for 2017; ,000
(,000 including catch-up contributions) for 2016.

So as long as everything stays below that ,000 limit you are good.

In one case the decision was made by the company for the employee, the other company gave us the option of bonus check or 401K. I heard that most of the employees wanted the money in the 401K.

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This has to do with the type of plan offered: is it a 401(k) plan or a profit-sharing plan, or both?

If it's 401(k) I believe the IRS will see this distribution as elective and count towards the employee's annual elective contribution limit.

If it's profit sharing the distribution would be counted toward the employer's portion of the limit.

However -- profit sharing plans have a formula that's standard across the board and applied to all employees. i.e. 3% of company profits given equally to all employees. One of the benefits of the profit sharing plans is also that you can use a vesting schedule.

I'd consult your accountant to see how this specifically impacts your business - but in the case you describe this sounds like an elective deferral choice by an employee and I don't see how (or why) you'd make this decision for them. Give them the bonus and let them choose how it's paid out.

Edit: in re-reading your question it actually sounds like you're wanting to setup a profit sharing type situation - but again, heed what I said above. You decide the amount of "profit" - but you also have to set an equation that applies across the board. There is more complication to it than this brief explanation and I'd consult your accountant to see how it applies in your situation.