Qualified 401(k) Administrator (QKA) 2 Practice Exam

The key regulatory requirement concerning excess contributions in a retirement plan is that they must be distributed or recharacterized timely. This requirement is crucial to ensure that the plan remains compliant with IRS regulations. When contributions exceed the allowable limit, they can create tax implications for participants and the plan itself.

Timely distribution or recharacterization of excess contributions helps avoid penalties and ensures that participants do not face additional tax burdens. By returning these excess funds to the participant or reallocating them properly within the plan, the integrity of the retirement savings strategy is maintained. This requirement emphasizes that plans need to monitor contributions closely and take prompt action to rectify any excess amounts before the end of applicable tax periods.

The other options do not accurately capture the specific regulatory requirement regarding excess contributions. For example, while annual reporting is important, it is not specifically about excess contributions. Similarly, redirecting contributions or imposing a percentage cap does not address the immediate requirement to address excess contributions promptly.