Key Employees Defined for top heavy testing

Pursuant to IRC 415(i)(1), a key employee is any employee who, during the preceding plan year (exception for first plan year, use the current year):

  • was a more than 5% owner of the employer;
  • was a 1% owner of the employer having an annual compensation of more than $150,000; or
  • was an officer or the employer and received compensation greater than $170,000.

With respect to the 5% and 1% ownership tests, certain attribution rules apply with regard to family members, certain trusts or other entities.

There are limitations on how many officers may be considered key employees, as illustrated in the following chart:


Number of EmployeesMaximum Number That May Be Considered Officers
1-30No more than 3
31-49910% of actual number of employees
500 or moreNo more than 50

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>


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