401(K) Plans
What 401(K) Plans Are There?
There are several different types of 401k Plans that you could set up for your business and different rules govern each of these plans.
Examples of different types of 401(k) plans are:
Traditional 401(k) plan, Self-Directed 401(k) plan, Safe Harbor 401(k) plan, Tiered Profit Sharing 401(k) plan, and SIMPLE 401(k) plans
Here are some highlighted features of commonly adopted 401(k) plans.
The perfect match for you and your business will be determined through the plan design process.
Traditional 401(k)
- Best for
- Any private or public company, but best for companies with 20 or more employees.
- Key advantage
- Flexible
- Offers a wide range of investment options.
- Allows small business owner to change the employer contribution amount every year
- Allows high level of salary deferrals by employees
- Who can contribute
- Employee deferrals and employer contributions.
- Tax advantage
- For employees, contributions are pre-tax contributions and growth is tax-deferred
- For employers, contributions are tax-deductible
Safe Harbor 401(k) Plans
- Best for
- Any private or public company, whose employers want to actively encourage employees to save by motivating them with matching employer contributions.
- Key advantage
- Avoids annual nondiscrimination compliance testing such as the ADP, ACP, or Top-Heavy Tests
- Encourages plan participation among non-highly compensated employees and non-key employees
- Promotes retention of top performers and attracts highly qualified candidates to the business
- Who can contribute
- Employee deferrals and employer contributions.
- Tax advantage
- For employees, contributions are pre-tax contributions and growth is tax-deferred
- For employers, contributions are tax-deductible
New Comparability Plans
- Best for
- Any private or public company with less than 50 employees, whose owners are looking to reward key employees and stay on track with their own retirement savings.
- Key advantage
- Allows owner/employers to maximize employer contributions to themselves and their executive team
- Permits plan sponsors to make separate contributions for different groups of employees based on ownership, highly compensated status, non-highly compensated status, and other business-related criteria
- Can be setup as a standalone profit-sharing plan (employer contributions only), or they can include a 401(k) feature allowing employees to make contributions
- Who can contribute
- Employee deferrals and employer contributions.
- Tax advantage
- For employees, contributions are pre-tax contributions and growth is tax-deferred
- For employers, contributions are tax-deductible
