Safe Harbor 401(k) Plans
The Safe Harbor Plan allows you to:
- Contribute up to the maximum tax deferral amount ($16,500) to lower your taxes this year
- Receive additional savings from your company's matching contributions (you're an "employee" too!)
- Avoid the hassles of IRS non-discrimination testing
Get tax deductions for your matching contributions
More good news: come tax time, your business can deduct all matching contributions (within the deductibility limitations imposed by the IRS) to employee accounts. And don't forget, matching contributions increase retention of current employees, and are a great recruiting tool for prospective hires.
Avoid IRS testing
To avoid non-discrimination testing, your business will need to contribute to both your 401(k) account and your employees' accounts. Companies that choose a Safe Harbor plan must either:
- Make a dollar-for-dollar matching contribution for all participating employees, on the first 4% of each employee's compensation (this is the most popular option), OR
- Contribute 3% of the employee's compensation for each eligible employee, regardless of whether the employee chooses to participate in the plan.
Safe Harbor plans work particularly well for companies that have consistent streams of revenue. Businesses finding it difficult to maintain matching funds year-round might find that a 401(k) plan without Safe Harbor may make more sense.
Get started today and purchase your plan by September 21, 2010, to make this year's deadline.