Correctly setting up and operating a 401(k) or other practice retirement plan can be quite problematic. The rules are extremely complex and sometimes confusing, causing even retirement plan experts to make unintentional mistakes and oversights. In fact, one retirement plan expert estimates that over 50% of plans are not compliant, due to organizational and/or operating errors. For example, an employee may begin participation in the plan too early, or too late, or the contribution on her behalf, or payout, may be miscalculated.

In the past, IRS retirement plan audits were quite rare. However, if problems were discovered on audit, it could lead to draconian consequences, including retirement plan disqualification. In that event, deductions for contributions previously taken could be disallowed and all investment earnings subject to immediate tax. What a disaster!