We’ll go through a brief description of each: Maximum Safe Harbor Match is 4% of compensationĮach Safe Harbor contribution has its own pros and cons, and the decision of which to choose depends on your retirement goals and benefit philosophy.Deferrals from 3% to 5% are matched at 50%.Deferrals up to 3% of compensation are matched at 100%.There are two possible Safe Harbor contributions: ![]() The deferral specific testing passes automatically as long as you provide the required notices to participants and fund the Safe Harbor contribution. The option promotes company goodwill with employees and provides increased retirement savings for all.Īdding a Safe Harbor provision to your 401k plan ensures business owners/HCEs at your company can take full advantage of the annual deferral dollar limit. The good news is that the IRS tax code has an option which allows business owners/HCEs to make the maximum deferral amount without risk of a refund. The refunds will be taxable income to the employee. When compliance tests specific for deferrals and employer match contributions do not pass, deferral/match refunds may be required. Being eligible for the plan is not enough to pass required testing–rank and file employees must also choose to defer at a rate that meets IRS compliance testing. ![]() Whether or not the business owners and other highly compensated employees (HCEs) can retain their deferrals in the plan will depend on the deferrals made by the company’s rank and file employees. In 2018, the IRS tax code allows deferrals of $18,500 for participants under age 50 and deferrals of $24,500 if age 50 or older. Business owners generally intend to fund the annual deferral dollar limit when they establish a 401(k) Plan.
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