Is my 401(k) top-heavy?


Do some people in your 401(k) plan appear to have all the money? If so, the law may require you to do something about it. You may be required to make additional contributions to the accounts of your rank-and-file employees with smaller account balances.

What is a top-heavy plan?

A plan is top-heavy when the owners and most highly paid employees ("key employees") own more than 60% of the value of the plan assets. This ratio is tested every year based on the account balances on the last day of the prior plan year. The employer must generally pay a minimum 3% benefit to the accounts of the lower paid employees (the "non-key employees") if the top-heavy ratio exceeds 60%.

  • If Key employees accounts divided by All employees accounts is more than 60%, then the plan is top-heavy.

Are some 401(k) plans exempt from top-heavy testing?

Yes. There's no need to do top-heavy testing for a safe harbor 401(k) that receives only elective deferrals and safe harbor minimum contributions. These are:

  • Matching contributions (up to 4% match)
  • Non-elective employer contributions of 3% of salary to every account regardless of whether the employee makes salary deferrals
  • Contributions under a qualified auto-enrollment plan (up to 3.5% match, or 3% non-elective)

If you don't make these minimum contributions to employees' accounts (matching or non-elective), it won't be exempt.

Key employees

Key employees are officers or owners of your business who at any time during the year before your testing date were:

  • Officers making over $215,000 for 2023, $200,000 for 2022 and $185,000 for 2020-2021 (adjusted annually for inflation);
  • Business owners holding more than 5% of the stock or capital, or
  • Owners earning over $150,000 (not adjusted for inflation) and holding more than 1%.

A non-key employee is everyone else.

  • Determination date. The top-heavy determination date is the last day of the previous plan year (December 31 for a calendar year plan). Anyone employed for even one hour in the 12 months ending on the testing date should be included. However, if a key employee later becomes a non-key employee (because they sell their interest or are no longer an officer, for example), they should be excluded from your test.
  • Compensation. Compensation used to measure key employees includes all salaries, bonuses, commissions, taxable fringe benefits such as auto allowances, and elective deferrals, including compensation paid by any related employers. Your plan document will indicate the types of compensation to include.
  • Family member attribution. In measuring ownership, a participant must include stock owned by their spouse, children, grandchildren and parents. For example, a child who owns no shares may be a key employee because of family member attribution from the parent.

Contact your benefits professional if you have questions about measuring ownership, compensation, or other aspects of determining the key employees.

Employees whose balance is excluded from top-heavy calculations

Your top-heavy ratio calculation can leave out some people's account balances:

  • A former employee who did not work even one hour during your testing period. For example, someone who kept their 401(k) account despite moving to another job.
  • An employee who used to be a key employee, but no longer met the requirements during your testing period. Leave them out altogether.

Account balance adjustments

You may need to make some adjustments to the account values before calculating the top-heavy ratio.

Add back these amounts:

  • Distributions made to the employee from account during your testing period (such as hardship distributions)
  • Cash-out distributions to terminated employees
  • Loans to the employee during the testing period

Subtract these amounts:

  • Rollover contributions from another employer's plan or IRA.
  • Profit-sharing contributions that were not actually paid to the accounts during the testing period (for example, an amount declared in December but not contributed in cash until March the following year).

Figuring your top-heavy ratio

Your top-heavy ratio is the value of all key employee accounts divided by the value of all employee accounts on the last day of the prior plan year (your determination date). Include any employee who worked even one hour during the prior year, even if they left employment during that year.

If the ratio is greater than 60%, your plan is top-heavy.

Example: Hocking Corp. 401(k) Plan has six accounts with the following owners and account values on December 31, 2019 (the determination date for plan year 2020):

Employee Salary Account Value
Greene, 100% owner of Hocking Corp. $80,000 $35,000
Auglaize, who is Greene's spouse $40,000 $80,000
Clinton, who is Greene and Auglaize's child $50,000 $3,000
Lorain, a non-key employee $35,000 $5,000
Scioto, a non-key employee $20,000 $10,000
Vinton, who left employment in 2017 $0 $20,000
Total account values   $153,000
Less: disregarded accounts   $20,000
Total account values in Top-Heavy Ratio   $133,000

Because family attribution rules apply, Greene's stock is attributed to both his wife and his child, meaning that Greene, Auglaize, and Clinton are all considered 100% owners. They are key employees regardless of salary. Their combined account values of $118,000 are divided by the value of all employee accounts (less the disregarded employee who did not work in 2019) ($133,000) for a top-heavy ratio of 88% for plan year 2020.

If you have related businesses or plans

The tax law may require you to consolidate all related plans for purposes of testing whether your plan is top-heavy. If you sponsor more than one plan, you may have to combine them. Also, if you and your wife each own a business, they may have to be combined when calculating your top-heavy ratio. In general, you must combine all plans in which at least one key employee participates.

Making minimum contributions for non-key employees

Your plan document should spell out how the minimum contribution will be made if the top-heavy ratio exceeds 60%.

  • The minimum contribution is generally 3% of total compensation for the year (not just the dates of plan participation).
  • If the highest contribution percentage for a key employee is less than 3%, non-key employees receive the highest percentage for a key employee instead of 3%.
  • For purposes of determining this average contribution, elective deferrals are considered for key employees only.
  • All non-key employees receive the minimum contribution if they were employed on the last day of the year.


Vesting means ownership. Minimum top-heavy contributions must be 100% vested within six years with the following minimum schedules:

  • Three-year cliff vesting (100% vesting upon completing 3 years of service), or
  • Six-year graded vesting:
    • Less than 2 years of service – 0%
    • 2 years of service – 20%
    • 3 years of service – 40%
    • 4 years of service – 60%
    • 5 years of service – 80%
    • 6 years of service – 100%

Correcting past mistakes

If you think you may have incorrectly calculated your top-heavy minimum contributions for a prior plan year, you can fix this mistake using one of the IRS correction programs. For more information, see 401(k) Plan Fix-It Guide - The plan was top-heavy and required minimum contributions weren't made to the plan.

Additional resources