1. The following table shows the five employees of the law firm of Tayka, Mooney & Ruhn, plus some information about each. Employee Age Salary Position Tayka $210,000 Partner Mooney $160,000 Partner Ruhn $110,000 Partner Davies $60,000 Associate Edmundsen 27 $40,000 Paralegal a. Rollings Consultants explain to the owners of Tayka, Mooney & Ruhn the problems that may occur with 401(k) plans. They show an example of how the company can fail the ADP test and how highly paid employees would not be able to take all the deductions they want. Pretend you are the Rollings consultant. Show such an example and give the firm some methods to overcome this problem. Use the table above to calculate an example and explain your answer. Answer: In 2018 the maximum allowable compensation is $275,000; Tayka, Mooney, and Ruth contributes $18,500; Davies contributes $3,000; Mooney contributes $2,000; (3) L (4) (1) (2) Current Salary Age Employees Allowable Compensation Voluntary 401(k) Contribution Contribution As a Percentage of Compensation (4)/(3) Tayka Mooney Ruhn 37 | 34 28 38 27 S $ $ $ $ $ Davies Edmundsen $ $ ADP Test 1: ADP Test 2: 1. The following table shows the five employees of the law firm of Tayka, Mooney & Ruhn, plus some information about each. Employee Age Salary Position Tayka $210,000 Partner Mooney $160,000 Partner Ruhn $110,000 Partner Davies $60,000 Associate Edmundsen 27 $40,000 Paralegal a. Rollings Consultants explain to the owners of Tayka, Mooney & Ruhn the problems that may occur with 401(k) plans. They show an example of how the company can fail the ADP test and how highly paid employees would not be able to take all the deductions they want. Pretend you are the Rollings consultant. Show such an example and give the firm some methods to overcome this problem. Use the table above to calculate an example and explain your answer. Answer: In 2018 the maximum allowable compensation is $275,000; Tayka, Mooney, and Ruth contributes $18,500; Davies contributes $3,000; Mooney contributes $2,000; (3) L (4) (1) (2) Current Salary Age Employees Allowable Compensation Voluntary 401(k) Contribution Contribution As a Percentage of Compensation (4)/(3) Tayka Mooney Ruhn 37 | 34 28 38 27 S $ $ $ $ $ Davies Edmundsen $ $ ADP Test 1: ADP Test 2
