Safe Harbor 401(k)

Description
A Safe Harbor 401(k) is a plan that allows maximum deferrals by owners and highly compensated employees because of required minimum contributions. It allows for both employer and employee contributions.

Objective
With a Safe Harbor 401(k) Plan, you can better prepare for retirement while attracting and retaining valuable employees with this added benefit.

Many Safe Harbor 401(k) plans allow a participant to designate part or all of his salary deferrals as after tax Roth contributions.

Suitability
This plan is appropriate for businesses with the following characteristics:

• A business with less than 25 employees, however employees of any size may find these plans attractive
• Those who want to offer a pre-tax salary deferral plan to employees
• A business interested in permitting owners and key employees to always make maximum salary deferral contributions
• Employers who are open to required employer contributions

• Contributions
  
  
  • All participants are permitted to make the maximum salary deferral contribution.
  • Total contributions from both sources (employer and employee) may not exceed 100% of income or $49000 per eligible participant (2009).
  • The employer is required to either match employee contributions (100% of the participants first 3% of salary and 50% of the next 2% of salary) or provide a non-elective contribution (3% of salary for all eligible employees).

• Roth Contributions - If your employer offers a 401(k) plan, you may be able to take advantage of the Roth 401(k) option.
  
  The Roth option in a 401(k) allows you to designate part or all of your 401(k) contribution as Roth after-tax dollars. If certain requirements are met, the Roth distributions from your 401(k) may be tax-free.
  
  For example, the most you can contribute to a 401(k) in 2009 is 100% of your pay, up to $16,500, or $22,000 if you are age 50 or older before year-end (your company's plan may have more restrictive limitations). You can designate part or all of your 401(k) contribution as a Roth, or as traditional pre-tax contribution.
• Eligibility - Discrimination testing is not required as long as the Safe Harbor requirements are met. To be eligible to participate, an employee must be 21 years old and have completed one year of service. A year of service is equivalent to 1,000 hours. An employer can elect a more liberal eligibility requirement.
• Vesting - Employee deferral and Safe Harbor contributions are immediately vested. Profit sharing and matching contributions (exceeding Safe Harbor matching requirements) can require a vesting schedule.
• Deadlines -

  • The plan must be established before contributions can be made by any participants, including owners.
  • The last day to establish a plan for the current plan year is 90 days prior to the employer's year-end.
  • Participant contributions must be deposited as soon as administratively feasible, but in no case later than the 15th business day following the month they were withheld.

• This type of plan requires the services of an administrator for the compliance, plan maintenance, record keeping, 5500 filing, required testing, etc.
• Loan provisions may be added.
• Your local Edward Jones financial advisor can help you select the plan platform that meets your needs.

For more information on Safe Harbor 401(k)s, please contact your local financial advisor.