The Frugal Fiduciary Small Business 401(k) Blog
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Safe harbor 401(k) plans are subject to employer contribution and participant disclosure requirements that don’t apply to traditional (non-safe harbor) 401(k) plans. In exchange, a safe harbor plan can automatically pass the ADP/ACP test and satisfy the minimum contribution requirement when the top heavy test fails. Because many small 401(k) plans (under 100 participants) have a hard time passing the ADP/ACP and top heavy tests, safe harbor plans are popular with small businesses.
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.
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Safe harbor 401(k) plans are the most popular type of 401(k) sponsored by small businesses today. They can help business owners maximize their annual contributions by automatically passing the ADP/ACP and top heavy nondiscrimination tests - which small business 401(k) plans often fail. However, to achieve safe harbor status, a plan must meet certain employer contribution and participant disclosure requirements. For many business owners, that trade-off is well worth the cost.
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: