Small Business 401(k) Blog

401(k) or SIMPLE IRA?  Whether you’re just looking to confirm a choice or haven’t even begun to make one, you know this is an important decision. The kind of plan you pick could have an enormous impact on the finances of everyone involved in your business. 

Safe harbor 401(k) plans are the most popular form of 401(k) sponsored by small businesses today. They help business owners maximize the contributions made to their personal account by automatically passing the ADP/ACP and top heavy nondiscrimination tests. However, to achieve safe harbor status, a 401(k) plan must meet certain contribution and participant disclosure requirements. For many owners, this trade-off is 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.