Tax Tip Spotify Podcast and/or WordPress Blog Post and the Types of 401(k) Plans

Tax Tip Podcasts & Blog Posts for Realtors, Brokers, Real Estate Professionals
Types of 401(k) Plans

This Spotify Podcast or WordPress Blog Post are for those considering adopting a 401(k) plan for your employees. There are four basic types of 401(k) plans: traditional, automatic enrollment, safe harbor, and SIMPLE plans.

A traditional 401(k) plan offers the most flexibility of the four. Employees can make pre-tax deferrals through payroll deductions. In addition, employers can make nonelective contributions on behalf of all participants, match their employees’ deferrals, or both. These additional employer contributions can be subject to a vesting schedule, under which an employee’s right to employer contributions becomes nonforfeitable only after a period of time. These plans must be tested annually to ensure that benefits for rank-and-file employees are proportional to benefits for owners/managers.

An automatic enrollment 401(k) plan allows an employer to automatically deduct a fixed percentage or amount from an employee’s wages and contribute that amount to the retirement plan unless the employee has affirmatively chosen to contribute nothing or a different amount.

A safe harbor 401(k) plan is similar to a traditional 401(k) plan, but, among other differences, must provide for employer contributions that are fully vested when made. However, a safe harbor 401(k) plan is not subject to many of the complex tax rules that are associated with a traditional 401(k) plan, including annual nondiscrimination testing.

Traditional, automatic enrollment, and safe harbor 401(k) plans are for employers of any size and can be combined with other retirement plans.

SIMPLE 401(k) plans give small businesses a cost-efficient way to offer retirement benefits to their employees. A SIMPLE 401(k) plan is not subject to annual nondiscrimination testing. Similar to a safe harbor 401(k) plan, however, the employer must make employer contributions that are fully vested. SIMPLE 401(k) plans are available only to employers with 100 or fewer employees who received at least $5,000 in compensation from the employer for the preceding calendar year. In addition, employees that are covered by a SIMPLE 401(k) plan cannot receive any contributions or benefit accruals under any other plans of the employer.

Please call me at your convenience so that we can discuss which type of 401(k) would best suit your needs.

Brenda Fitch Real Estate Professional
Brenda Fitch Real Estate Professional

Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.

DON FITCH, CPA
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Palm Desert, CA 92260

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Types of 401(k) Plans
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(Updated 04302021 320-503)

Published by Don Fitch, CPA

Offers in Compromise, Wage Levy Releases, Installment Agreements, IRS Audits, and much more IRS assistance. Also, allow us to Help you complete your Tax Returns from 1913 to present (100+ Years) and for any of the 50 States.

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