The Frugal Fiduciary Small Business 401(k) Blog
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Safe harbor 401(k) plans are the most popular type of 401(k) sponsored by small businesses today. They can automatically pass Actual Deferral Percentage (ADP), Actual Contribution Percentage (ACP), and top heavy testing, which helps business owners maximize personal contributions. To achieve safe harbor status, a business must meet certain employer contributions and participant disclosure requirements. For many owners, that trade-off is well worth the cost. Here’s why:
If you’re leaving your job for a new employer, you must decide what to do with your 401(k) account. To keep growing your savings tax-free until retirement, you could have up to 3 options: keep it where it is, roll it to a new employer-sponsored plan, or roll it to a personal IRA. It’s important to make an educated decision. Otherwise, you risk making your dream retirement more expensive than necessary.
Safe harbor 401(k) plans are the most popular type of 401(k) used by small businesses today. Unlike a traditional 401(k) plan, they automatically pass the ADP/ACP and top heavy nondiscrimination tests when mandatory contribution and participant disclosure requirements are met. This trade-off is worth it for many business owners, who often bear the brunt of the consequences when their 401(k) plan fails testing. However, a safe harbor 401(k) plan is not the best fit for every small business. They can cost more than a traditional 401(k) plan, but offer less plan design flexibility – making it harder for some business owners to meet their plan priorities
Over the years, I’ve met with countless small business owners thinking about replacing their current SIMPLE IRA (Savings Incentive Match PLan for Employees) with a new 401(k) plan. During these meetings, the most common questions I receive are:
Bar none, profit sharing contributions are the most flexible type of employer contribution a company can make to their 401(k) plan. These contributions are not only discretionary, but they can be made to any eligible plan participant – even if the participant fails to make 401(k) deferrals themselves. They can also be allocated using dramatically different formulas – allowing employers to meet a broad range of 401(k) plan goals with them.
You’ve been taxed with the responsibility of setting up a retirement plan for your tax exempt organization and now you’re trying to decide between a 403(b) or a 401(k) plan. You’ve Googled, you’ve read, you’ve cringed at the technical language presented to you, desperately trying to understand the differences. Been there, done that.