Safe Harbor 401(k) Plan
Tax
Advantages
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Employee deferrals are pre-tax and Employer contributions are tax-deductible
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Employees pay no income taxes on contributions or earnings until the participant or their beneficiary receives them
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Tax-deferral maximizes the compounding value and increases the participant's ultimate retirement income
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Employers pay no income taxes on contributions made to the plan on behalf of the Employees
Safe
Harbor 401(k) Features
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Employees can elect to defer from 0 up to 100% of their pre-deferred income, up to a maximum of $15,500 ($5,000 catch-up contribution allowed if employee is 50 years old, or older)
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Payroll deductions make deferrals convenient and easy
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Employee pre-tax deferrals reduce their Federal, State* and Local* income taxes but are subject to Social Security (FICA) tax
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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 $15,500
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Mandatory Employer contributions of either:
(1) 3% non-elective contribution to all eligible participants or
(2) Basic Matching Contribution equal to 100% match of first 3% of compensation deferred plus 50% match of next 2% of compensation deferred, or
(3) Enhanced Matching Contribution example: 100% match of first 4% of compensation deferred -
Mandatory Employer Contributions are 100% vested
-
Employee deferrals are always 100% vested
Plan
Suitability
Safe Harbor 401(k) Plans are
advantageous to the Employer when the
Employer:
-
Wants to eliminate discrimination testing
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Wants to give employees the opportunity to enhance their own retirement benefits
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Wants employees to make part of the their contributions
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Willing to commit to some employer contributions
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Wants to limit Employer contribution obligations
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Wants flexibility in making profit sharing contributions
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Has relatively young key employees
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Wants to attract and keep key employees
Sample Safe Harbor 401(k) Allocation (assuming 3% non-elective contribution with new comparability profit sharing contribution)
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Safe Harbor 401(k) Plan / New Comparability Plan with 3% Contribution 2008 Fiscal Year |
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|
Name |
Attained Age |
Income |
Deferral$ |
EE% |
$Safe Harbor 3% |
%Safe Harbor 3% |
NCPS $ |
NCPS % |
Total$ |
Total% |
415 Limit |
|
|
Officer/ Shareholder # 1 |
48 |
$230,000.00 |
$15,500.00 |
6.60% |
$6,900.00 |
3.00% |
$23,600.00 |
10.40% |
$46,000.00 |
20.00% |
$46,000.00 |
|
|
Officer/ShareHldr 2 (includes 5,000 catch up) |
57 |
$230,000.00 |
$15,500.00 |
6.60% |
$6,900.00 |
3.00% |
$23,600.00 |
10.40% |
$51,000.00 |
22.17% |
$46,000.00 |
|
|
Group A |
|
$460,000.00 |
$31,000.00 |
|
$13,800.00 |
|
$47,200.00 |
|
$97,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manager |
49 |
$75,000.00 |
$10,000.00 |
13.33% |
$2,250.00 |
3.00% |
$7,500.00 |
10.00% |
$19,750.00 |
26.33% |
$46,000.00 |
|
|
Group B |
|
$75,000.00 |
$10,000.00 |
|
$2,250.00 |
|
$7,500.00 |
|
$19,750.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staff # 1 |
43 |
$18,000.00 |
$0.00 |
0.00% |
$540.00 |
3.00% |
$360.00 |
2.00% |
$900.00 |
5.00% |
$18,000.00 |
|
|
Staff # 2 |
33 |
$25,000.00 |
$0.00 |
0.00% |
$750.00 |
3.00% |
$500.00 |
2.00% |
$1,250.00 |
5.00% |
$25,000.00 |
|
|
Staff # 3 |
28 |
$23,000.00 |
$0.00 |
0.00% |
$690.00 |
3.00% |
$460.00 |
2.00% |
$1,150.00 |
5.00% |
$23,000.00 |
|
|
Staff # 4 |
39 |
$30,000.00 |
$0.00 |
0.00% |
$900.00 |
3.00% |
$600.00 |
2.00% |
$1,500.00 |
5.00% |
$30,000.00 |
|
|
Staff # 5 |
39 |
$40,000.00 |
$0.00 |
0.00% |
$1,200.00 |
3.00% |
$800.00 |
2.00% |
$2,000.00 |
5.00% |
$40,000.00 |
|
|
Staff # 6 |
48 |
$35,000.00 |
$0.00 |
0.00% |
$1,050.00 |
3.00% |
$700.00 |
2.00% |
$1,750.00 |
5.00% |
$35,000.00 |
|
|
Group D |
|
$171,000.00 |
$0.00 |
|
$5,130.00 |
|
$3,420.00 |
|
$8,550.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$706,000.00 |
$41,000.00 |
|
$21,180.00 |
|
$58,120.00 |
|
$125,300.00 |
|
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|
Group A % |
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