- Employees elect to place a portion of their compensation in this tax qualified plan.
- Maximum individual deferral limit (see plan limits)
- Catch-up provisions (see plan limits)
- Required ADP and ACP compliance testing
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- Employees elect to place a portion of their compensation in this tax-qualified plan. All contributions and plan earnings are tax deferred until withdrawn from the plan.
- No 401(k) Compliance Testing
- Required Safe Harbor Employer Contribution is
satisfied in one of two ways:
- Non-Elective Contribution: 3% of pay for all eligible employees
- Matching Contribution: Basic Match equal to 100% match of employee deferrals up to the first 3% of pay and 50% match on the next 2% of pay, or Enhanced Match equal to 100% match of employee deferrals up to 4% of pay
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- Contributions are generally made from the employer's profits, either as a discretionary amount or a specified percentage, although the employer may also contribute if no profits are present.
- Maximizes Contributions for Owner(s)
- Employees Divided into Predefined Groups
- Group 1: Owner(s)
- Group 2: All other employees
- Example of Profit Sharing Allocation
- Group 1: 20% of Pay
- Group 2: 5% of Pay
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- Maximizes Benefits for Older Employees
- Requires an Annual Employer Contribution Maximum Annual Benefit of (see plan limits) Deduction Limit may exceed 25% of Payroll
- Can generate significantly higher deductions in certain circumstances than traditional Defined Contribution Plans
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