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Financial Planning / Foolish 401(k)s
|Subject: Re: Business 401k or not?||Date: 7/13/2012 11:53 PM|
|Author: W401K||Number: 24918 of 25316|
Just wanted to add to the other posts.
Here are my assumptions, please correct any if they are wrong.
-You are a non owner w2 employee at the company that offers the 401k and offers the 6% match.
-You are the sole 100% owner of the business that employs 15 part time employees
-You earn at least $25,000 at the business you own
-The 401k you participate in is not satisfactory because you feel you can do better than investing in individual stocks rather than mutual funds that invest in stocks
Contribute to the 401k where you are a non owner W2 employee to take full advantage of teh company match.
Any remaining dollars below your $17k and $5,500 catch up limit will go to the 401k at your company that you own.
This will work if your part timers are truly part time. You can exclude part time employees from a 401k. You can not exclude part time employees from a SIMPLE or a SEP. In a SIMPLE once an employee earns $5,000 in 2 consecutive years and is reasonably expected to earn $5,000 in the third year, they will be eligible. In a SEP. once they earn $550 in at least 3 of the preceding 5 years they are eligible. Also, in a SEP there is no Employee contributions, so if the business gives you money, you have to give all eligible employees money on a pro rata basis.
The 401k option will allow you to exclude part timers provided that they do not work 1,000 hours, are under 21 and have been there less than 1 year. If someone hits all 3 of those marks, they will be eligible. If any of your 15 eligible meet those requirements, then as AJ pointed out a Safe Harbor Plan would be best. You would only give money to those employees that contribute their own money via a Safe Harbor Match. A match on nothing is nothing.
So, in summary:
Contribute 6% of pay to your employer where you are w2.
If you have no eligible employees at the company you own, set up a Single K (Solo-k, Uni-k, individual-k, etc).
Contribute the balance of your deferral limit, and as long as you have no eligible employees, you may also give yourself an employer contributioo.
If you have eligible employees, set up a Safe Harbor 401k with a match, you contribute the balance of your deferral limit, you also get the match. You will have to match any employees that may contribute as well.
Safe Harbor Plan needs to be established prior to October 1st.
Single K needs to be established by 12.31 but need not be funded until your tax filing deadline plus extensions.
Post back any info I may have musunderstood, or if you have questions.
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