If you are considering setting up a 401(k) plan for 2015, you may not have as much time as you think. October 1st is the deadline for implementing a safe harbor 401(k) plan this year. Safe harbor design – whether a match or nonelective contribution – will eliminate ADP/ACP testing. Safe harbor is the only way to go if you have Highly Compensated Employees who intend to max out at the $18,000 deferral limit in 2015 and staff who will most likely defer very little or nothing at all. Another item to note is most recordkeepers need 60 days to get a plan up and running.
401(k) plans are a wonderful benefit for employees and a great recruiting and retention tool. Additionally, an employer can provide a profit sharing contribution as an extra employee benefit. Doing so can result in substantial tax savings for the employer, particularly if the contributions are skewed toward owners with a cross-tested or age-weighted allocation.
Sometimes a profit sharing plan without a 401(k) deferral feature may be the best plan design. The absence of a 401(k) feature eliminates a level of administrative work and makes a plan much simpler to maintain. These plans are appropriate for business owners who can attain an efficient contribution allocation without deferrals or those for whom tax savings is not as high a priority. A profit sharing plan for 2015 may be implemented as late as December 31st. Sometimes, it makes sense to adopt a profit sharing plan, then add the 401(k) feature in a subsequent year.
Think about your objectives. Whichever retirement plan design you have in mind, now is a perfect time to meet with ACG and talk strategy. Give us a call today at (804) 323-1886 to see which plans will work best for you.