The Clock is Ticking!

Set up a New Safe Harbor 401(k) Plan by October 1!

Business owners and other Highly Compensated Employees (HCE’s) really benefit from a Safe Harbor 401(k) Plan. They can maximize their deferral contributions to the plan regardless of the level of participation by the Non-HCE’s. That maximum for 2018 is $18,500 plus a $6,000 catch up contribution if age 50 or older. The cost of this benefit is an employer contribution to the employees (HCE’s and Non-HCE’s). This safe harbor employer contribution can be done in one of two ways:

  1. 3% of compensation to ALL eligible employees OR
  2. A matching contribution calculated as:
    1. Matching contribution of 100% of the first 3% of an employee’s contribution, and 50% of the next 2% of an employee’s contribution. Thus, if an employee contributes the full 5%, it will cost the employer 4% OR
    2. Matching contribution of 100% of the first 4% of an employee’s contribution

 

If option 1 is used, this 3% safe harbor contribution can be used toward satisfying other discrimination tests within the plan, allowing for even more benefit for owners and HCE’s through a profit sharing contribution as well.

Tax Benefits: All employer contributions to the plan are deductible on the company return, thus lowering tax liability. In addition, an employer adopting a new 401(k) plan may qualify for an additional tax credit of up to $500 per year for the first three years.

If you are interested, have questions, or would like a free proposal, please contact Anne Christian, CPA at achristian@bwtpcpa.com. Remember, the plan needs to be set up by October 1, 2018 in order to take advantage of these benefits in 2018.

Anne Christian, CPA is a member of the Retirement Services department at BWTP, P.C. Read more about Anne here.

Leave a Reply

*

captcha *