Like most people, you are probably depending on your 401(k) plan to have a comfortable life after you retire or at least have enough money where you can enjoy your retirement. This means that it is crucial for you to maximize your 401(k) so that you are able to save as much money as you possibly can. The problem is that a majority of the time, retirement plans are set up in a simplistic fashion, so you are not getting the most out of your plan. You do have 401(k) options and understanding this can benefit your financial future.
If your company is looking to maximize contributions to a 401k plan you should review the benefits of a cross-tested plan. What a cross-tested plan means is that the profit sharing contributions go through a specific method of testing in order to ensure that the targeted contributions do not discriminate against in favor of highly compensated employees, or HCEs. The biggest advantage of choosing this plan is because it allows for a much larger contribution for those older employees or owner employees and less of a contribution for younger employees. This is an important distinction because younger employees have more time to accrue money in their 401(k) while older employees do not.
There is also a Safe Harbor Plan option that you can consider for your 401(k). A Safe Harbor plan is where HCEs and other key employees can defer a specific amount of money up to the annual maximum without having to worry about non-discrimination testing. With Safe Harbor Employer Basic Match, there is a basic 100% match of your salary deferrals with up to 3% of compensation. This is in addition to the 50% of salary deferrals for the next 2% of compensations with a maximum of 4%. There is also the Safe Harbor Enhanced Match. With this, you get 100% of the salary deferrals for up to about 6% of compensation. There are other options that are a bit more aggressive than these that you can choose in order to get the best 401(k) for your specific needs.
Each of these different plans has their own benefits for the employee. A great financial company will be able to address the needs of your employees. They will carefully look at your plans to make sure that you are getting the most out of your 401(k). Your livelihood after you have retired depends on this. When you retire, you do not want to have to find another job to make ends meet because you didn’t have enough in your retirement accounts to relax during this new phase of your life. You do have options and by optimizing your 401(k) plan, you could potentially save well over $54,000 in your 401(k) plan. This is going to make a huge difference in the quality of life you will have when you retire.
- Stephen Dix, ERPA, QPC, QKA
Mr. Dix is a Senior Pension Consultant and owner of Wellington Retirement Solutions, Inc. with over 25 years of experience in the industry. Wellington Retirement Solutions, Inc. can help you determine what type of 401(k) Plan is ideal for your business. Even if you already have a 401(k) Plan, allow us to review your Plan provisions for peace of mind to know that the design of your 401(k) Plan meets your goals & objectives. We are committed to providing personal service excellence. If you have any questions regarding the information in this article then please reach out to one of our specialists at (888) 934-4015.