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Financial Planning / Foolish 401(k)s


Subject:  Re: Business 401k or not? Date:  7/15/2012  11:05 AM
Author:  W401K Number:  24921 of 26295

If your employees dont hit all 3, 1,000 hours, 1 year of service, and 21 years of age, they can be excluded. If any of your employees hit any of those, they will be eligible. The concern as AJ pointed out is discrimination testing which will limit your ability to contribute based on the amounts they contribute. The bigger concern is Top Heavy testing. If you control 60% or more of Plan assets, the Plan will be deemed top heavy and you will have to give 3% of pay to ALL eligible employees.
By utilizing the Safe Harbor design, and doing the Safe Harbor match, you are exempt from Discrimination testing and top heavy testing. You only give the match to those employees that participate. If no one participates, there is no cost in terms of the match and you are able to maximize your contributions as well as receive the match if you decide to do so.
If none of your employees are eligible, the above does not apply and you can do a Single-K (Solo-k, Uni-k, etc.
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