LUTZ BUSINESS INSIGHTS

 

October 1st Safe Harbor 401k Deadline

CHRIS WAGNER, INVESTMENT ADVISER

The deadline for a company to establish a new 401(k) Safe Harbor Plan for 2017 is fast approaching!

  • New Safe Harbor 401k Plans for 2017 must be in place by October 1st.
  • Initial plan setup paperwork should be established by September 15th.

 

SHOULD YOU CONSIDER IMPLEMENTING A SAFE HARBOR 401(K) PLAN IN 2017?

For many small business owners establishing a Safe Harbor 401(k) plan is a win-win situation.  It provides both business owners and employees with excellent tax and retirement benefits.

 

BENEFITS:

  • Tax Deferral: Traditional 401(k)’s allow elective tax-deferred contributions of up to $18,000 with catchup contributions of an additional $6,000 for participants who are 50 and older.
  • Roth Contributions: 401k plans may also permit after tax Roth contributions.  Roth 401(k) contributions are not subject to income limits, unlike Roth IRA’s.
  • Profit Sharing Contributions: Employer discretionary profit sharing contributions are commonly added to safe harbor 401(k) plan designs.  Depending on company and plan demographics this may allow a business owner to make total contributions of $54,000 annually, or $60,000, if 50 or older.
  • ERISA protection: Safe Harbor 401(k) plans receive creditor protection under the Employee Retirement Income Security Act (ERISA).
  • Tax Credits: If you start a 401(k), and it’s the first for your company, you may qualify for a $500 tax credit for each of the first three years of your plan.

 

WHAT IS A SAFE HARBOR 401K PLAN?

A safe harbor 401(k) plan design avoids annual nondiscrimination testing of employee elective contributions and employer matching contributions that is generally required in 401k plans.  This allows small business owners and highly compensated employees the ability to maximize their contributions.  To qualify, the employer must satisfy certain contribution requirements and employees must be immediately vested in employer safe harbor contributions.  This type of plan design benefits both small business owners and employees.

The following are two common safe harbor plan designs:

  • Safe Harbor Non-Elective Contributions:
    • The company makes non-elective contributions of at least 3% of compensation on behalf of eligible non-highly compensated employees. The 3% non-elective contributions can also be made for highly compensated employees but are not required.
  • Safe Harbor Matching Contributions:
    • The company matches 100% of employee elective contributions up to 3% of compensation and 50% of employee elective contributions between 3% and 5% of compensation on behalf of all eligible employees.

Here is an example of a safe harbor 401(k) and profit sharing plan for a small business with an owner, his spouse, and four employees.  The chart shows the deferral ability of the highly compensated owner under a safe harbor 401(k) plan.

 

Safe Harbor 401(k) plans with a profit sharing component can be a very attractive retirement plan option for business owners in a high tax bracket.  The following tax summary report highlights the potential savings for implementing this type of plan.

 

Is a Safe Harbor 401(k) plan right for you?  Contact us today for a free plan design analysis, as mentioned above, the deadline is fast approaching!

 


 

Important Disclosure Information

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.

Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz Financial.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz Financial is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz Financial’s current written disclosure statement discussing our advisory services and fees is available upon request.

ABOUT THE AUTHOR

402.827.2077

cwagner@lutz.us

LINKEDIN

CHRIS WAGNER, LUTCF®, CHFC®, CFP®, CPFA® + INVESTMENT ADVISER

Chris Wagner is a Retirement Plan Consultant and Investment Adviser at Lutz Financial with over 12 years of industry experience. He focuses on providing retirement plan consulting and investment advisory services.

AREAS OF FOCUS
  • Retirement Plan Consulting
  • Investment Due Diligence and Analysis
  • Provider and Fee Benchmarking
  • Fiduciary Guidance
  • Plan Design Analysis
  • RFP Provider Searches
  • Investment Advisory Services
  • Participant Education
AFFILIATIONS AND CREDENTIALS
  • National Association of Plan Advisors, Member
  • Life Underwriter Training Council Fellow
  • Certified Financial Planner®
  • Certified Plan Fiduciary Advisor®
  • Chartered Financial Consultant
EDUCATIONAL BACKGROUND
  • BSBA in Marketing, Midland University, Fremont, NE
  • American College of Financial Services, Bryn Mawr, PA
COMMUNITY SERVICE
  • Knights of Columbus, Member
  • St. Wenceslaus, Volunteer Coach

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