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Don’t Like Taking Tests? Embrace a Safe Harbor 401(k) Before Time Runs Out!

When you were in school, staying attentive in class and studying before a big test usually yielded a successful result—a passing grade and a weight lifted off of your shoulders. Though, we’ve all felt that panic at least once when you forgot to study or your teacher surprised the class with a pop quiz. Well, if you’re a business owner wanting to establish a 401(k) plan for you and your employees, get ready to be tested- with no option to study- to see if your plan meets IRS nondiscrimination rules. That unprepared feeling from grade school might resurface, as a plan could run into problems during testing if there is a large discrepancy between contributions for highly and non-highly compensated employees. (To see what technically designates an employee as “highly compensated” please refer to this IRS website.

Fortunately, there may be a solution to this potential problem, : the Safe Harbor 401(k) plan. Business owners can avoid the testing requirements by making contributions for all eligible employees that are fully vested when the contribution is made. These contributions can be made in the form of a matching contribution for employees who defer compensation into the plan with certain limits, or a flat non-elective contribution for all eligible employees up to 3% of compensation. This provides a real benefit to employees while also allowing the business owner to maximize her own 401(k) contribution which is set at $17,000 (or $22,500 for those age 50 and older) for 2012. Proper notice must also be given to each eligible participant on an annual basis describing their rights and obligations.

Timing is critical here though. A Safe Harbor 401(k) must be up and running at least 90 days before the end of the plan year. This means that the deadline for plan years ending 12/31/12 is October 1st. Be sure to give yourself enough time to get all of the necessary documents signed and in place so that the plan is ready to go by 10/1; it could take a few weeks. It is best to consult with a pension actuary and tax professional prior to establishing a qualified retirement plan.

Important Disclosure Information

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This article is not a substitute for personalized advice from RegentAtlantic. This information is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

Please remember that RegentAtlantic is not a plan actuary nor does RegentAtlantic give tax advice. Please consult with a pension actuary or tax professional of your choosing prior to implementing any strategy discussed in this article.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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