Safe Harbor 401(k) Plan
Tax
Advantages
-
Employee deferrals are pre-tax and Employer contributions are tax-deductible
-
Employees pay no income taxes on contributions or earnings until the participant or their beneficiary receives them
-
Tax-deferral maximizes the compounding value and increases the participant's ultimate retirement income
-
Employers pay no income taxes on contributions made to the plan on behalf of the Employees
Safe
Harbor 401(k) Features
-
Employees can elect to defer from 0 up to 100% of their pre-deferred income, up to a maximum of $17,000 ($5,500 catch-up contribution allowed if employee is 50 years old, or older)
-
Payroll deductions make deferrals convenient and easy
-
Employee pre-tax deferrals reduce their Federal, State* and Local* income taxes but are subject to Social Security (FICA) tax
-
No salary deferral discrimination testing, Highly Compensated Employees (HCEs) are not subject to non-HCE deferral rates. HCEs are guaranteed salary deferrals of up to $17,000
-
Mandatory Employer contributions of either:
(1) 3% non-elective contribution to all eligible participants or
(2) Basic Matching Contribution equal to 100% match of first 3% of compensation deferred plus 50% match of next 2% of compensation deferred, or
(3) Enhanced Matching Contribution example: 100% match of first 4% of compensation deferred -
Mandatory Employer Contributions are 100% vested
-
Employee deferrals are always 100% vested
Plan
Suitability
Safe Harbor 401(k) Plans are
advantageous to the Employer when the
Employer:
-
Wants to eliminate discrimination testing
-
Wants to give employees the opportunity to enhance their own retirement benefits
-
Wants employees to make part of the their contributions
-
Willing to commit to some employer contributions
-
Wants to limit Employer contribution obligations
-
Wants flexibility in making profit sharing contributions
-
Has relatively young key employees
-
Wants to attract and keep key employees
2012 Sample Safe Harbor 401(k) Allocation (assuming 3% non-elective contribution with new comparability profit sharing contribution)
|
Name |
Attained Age |
Income |
Deferral $ |
EE Def % |
Safe Harbor 3% $ |
Safe Harbor 3% |
Employee Catch Up |
New Comp Profit Sharing (NCPS) $ |
NCPS % |
Total $ |
Total % |
415 Limit |
|
|
Officer/SH #1 |
58 |
$250,000.00 |
$17,000.00 |
6.80% |
$7,500.00 |
3.00% |
$5,500.00 |
$25,500.00 |
10.20% |
$55,500.00 |
22.20% |
$50,000.00 |
|
|
Officer/SH #2 |
41 |
$250,000.00 |
$17,000.00 |
6.80% |
$7,500.00 |
3.00% |
$0.00 |
$25,500.00 |
10.20% |
$50,000.00 |
20.00% |
$50,000.00 |
|
|
Group A |
|
$500,000.00 |
$34,000.00 |
|
$15,000.00 |
|
$5,500.00 |
$51,000.00 |
|
$105,500.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manager |
46 |
$89,774.00 |
$0.00 |
0.00% |
$2,693.22 |
3.00% |
$0.00 |
$2,693.22 |
3.00% |
$5,386.44 |
6.00% |
$50,000.00 |
|
|
Group B |
|
$89,774.00 |
$0.00 |
|
$2,693.22 |
|
$0.00 |
$2,693.22 |
|
$5,386.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staff #1 |
30 |
$17,854.00 |
$0.00 |
0.00% |
$535.62 |
3.00% |
$0.00 |
$357.08 |
2.00% |
$892.70 |
5.00% |
$17,854.00 |
|
|
Staff #2 |
25 |
$31,287.00 |
$0.00 |
0.00% |
$938.61 |
3.00% |
$0.00 |
$625.74 |
2.00% |
$1,564.35 |
5.00% |
$31,287.00 |
|
|
Staff #3 |
41 |
$31,399.00 |
$0.00 |
0.00% |
$941.97 |
3.00% |
$0.00 |
$627.98 |
2.00% |
$1,569.95 |
5.00% |
$31,399.00 |
|
|
Staff #4 |
46 |
$30,026.00 |
$0.00 |
0.00% |
$900.78 |
3.00% |
$0.00 |
$600.52 |
2.00% |
$1,501.30 |
5.00% |
$30,026.00 |
|
|
Staff #5 |
36 |
$39,997.00 |
$0.00 |
0.00% |
$1,199.91 |
3.00% |
$0.00 |
$799.94 |
2.00% |
$1,999.85 |
5.00% |
$39,997.00 |
|
|
Staff #6 |
33 |
$31,622.00 |
$0.00 |
0.00% |
$948.66 |
3.00% |
$0.00 |
$632.44 |
2.00% |
$1,581.10 |
5.00% |
$31,622.00 |
|
|
Staff #7 |
42 |
$39,765.00 |
$0.00 |
0.00% |
$1,192.95 |
3.00% |
$0.00 |
$795.30 |
2.00% |
$1,988.25 |
5.00% |
$39,765.00 |
|
|
Staff #8 |
44 |
$22,008.00 |
$0.00 |
0.00% |
$660.24 |
3.00% |
$0.00 |
$440.16 |
2.00% |
$1,100.40 |
5.00% |
$22,008.00 |
|
|
Staff #9 |
26 |
$33,718.00 |
$0.00 |
0.00% |
$1,011.54 |
3.00% |
$0.00 |
$674.36 |
2.00% |
$1,685.90 |
5.00% |
$33,718.00 |
|
|
Group C |
|
$277,676.00 |
$0.00 |
|
$8,330.28 |
|
$0.00 |
$5,553.52 |
|
$13,883.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$867,450.00 |
$34,000.00 |
|
$26,023.50 |
|
$5,500.00 |
$59,246.74 |
|
$124,770.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group A % |
|
57.64% |
100.00% |
|
57.64% |
|
100.00% |
86.08% |
|
84.56% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group B % |
|
10.35% |
0.00% |
|
10.35% |
|
0.00% |
4.55% |
|
4.32% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group C % |
|
32.01% |
0.00% |
|
32.01% |
|
0.00% |
9.37% |
|
11.13% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions = Safe Harbor 3% of $26,023.50 and New Comparability Profit Sharing (NCPS) of $59,246.74
Total Employer contribution of $85,270.24 of which 77% is allocated to Officers/Shareholders.
For example purposes, we have assumed no employees will defer into the plan.
01/03/2012