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Financial Planning / Foolish 401(k)s


Subject:  Re: Business 401k or not? Date:  7/13/2012  3:53 PM
Author:  aj485 Number:  24915 of 26154

I work for a company that offers me a 401K with a match up to 6%. My wife’s job offers a 403B with no match. We are both contributing the max allowed. Me $22,500 (I’m over 50), my wife $17,000.
I have a small business that provides enough income for us to be able to maximize our contributions to these plans.

Your total annual contributions as an employee are limited to $22,500 or $17,000, depending on your age. Just to make things simple, let's assume you make $100k at the company that offers the 6% match and $50k at your own company. Since you are over 50, that means that you could contribute $6,000 to your employer's 401(k) in order to get the match, and you could contribute $16,500 to your own company's 401(k), for a total contribution of $22,500.

Is your wife also employed by your company? If not, she is stuck with the 403(b) plan that she has through her employer - you can't contribute to a 401(k) for her if she's not your employee - she has to contribute her own compensation to a 401(k). If she is employed by your company, she can contribute up to her entire salary from your company (minus Social Security & Medicare taxes) to your company's 401(k), up to the $17k that she is eligible to contribute. If she doesn't make enough at your company to contribute the whole $17k to your company's 401(k), she can contribute the difference to her 403(b).

If you, as individuals, contribute to more than one plan, it's up to you to make sure you don't go over the $22.5k/$17k that you are eligible to contribute.

Also my company has about 15 employees all of them working part time. I thought this information might be important if I was to match any 401k money (if this is at all possible).

Well, this adds some complexity, and will probably cost you some money if you want to max out your contribution to your own company 401(k), instead of putting money into your employer's 401(k).

Your 401(k) plan would have to be offered to all employees. As the owner of the company, you contibutions be limited by the 'highly compensated employee' rules unless you provide a 'safe harbor' plan. 'Safe harbor' plans require you to offer matching for your employee's contributions.

I would say with your situation, it would be best to consult a professional about what types of retirement plans are available to you as a business owner, and how you can best accomplish your goal of being able to invest in more investment choices than you have in your employer's 401(k).

Also, remember that 'retirement investments' don't have to be in a 401(k), 403(b) or some other 'designated' retirement plan. Taxable accounts can be used, too.

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