Safe Harbor 401(k) is a great retirement idea for the small business owner
by Lester Bahr, CPA on 08/30/14
The IRS Safe Harbor deadline is rapidly approaching on
October 1st. Safe Harbor refers to the rule which
allows business owners and family members to contribute up to $52,000 each into
their 401(k) even if their employees choose not to contribute.
These plans are popular in businesses with up to about 10 employees usually. This
is great if you are a small business owner looking to reduce your tax
liability for 2014 and position your finances for how
to afford a long happy retirement.
Here is how the plan works: A Safe Harbor 401(k) plan
automatically satisfies various non-discrimination tests for elective deferrals and
matching contributions. This is a significant benefit for plan sponsors,
because Average Deferral Percentage and Actual Contribution Percentage tests
generally limit how much highly compensated employees can contribute to a
401(k) plan. Among the important benefits of these plans is that it offers a more flexible way for business owners and highly compensated employees to save for their retirement. These individuals no longer have to depend on the participation of non highly compensated employees in the plan in order to attain maximum pretax deferral benefits for themselves.
