Why? Because if their highly compensated employees and key employees invest too heavily into the company’s retirement plan, there’s a chance the plan might not pass those nondiscrimination tests, which could lead to some costly consequences! Safe harbor plans are especially valuable for small businesses with fewer than 100 employees. But here’s the catch: Safe harbor plans require mandatory employer contributions and immediate vesting for employees (that means all employer contributions given to employees belong to the employees the moment those contributions hit their account). Let’s learn more about safe harbor 401(k)s and why they might be a great retirement plan option for your company!Ī safe harbor 401(k) is a type of retirement plan that allows small-business owners to avoid the IRS’s annual nondiscrimination testing. Nope, we’re not talking about retirement plans just for sailors or fishermen! Safe harbor 401(k)s are retirement plans designed to protect companies (small businesses, in particular) from getting in trouble with the IRS. That’s where the safe harbor 401(k) comes in to play. Maybe you’ve already set up a 401(k) plan at your workplace, but all the tests and hoops you have to jump through to meet the IRS’s rules and standards are driving you nuts. One of your many responsibilities as a small-business owner is to find the best way to help your employees save for retirement. If you are a small-business owner, you are the backbone of the American economy-and we salute you!
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