What is a Safe Harbor 401(k)?
It’s a type of 401(k) retirement plan. 401(k) plans are subject to a variety of federal regulations called “discrimination testing” or “non-discrimination testing” designed to ensure that organizations’ retirement plans are not too weighted to upper-level employees. Unfortunately, this often means that practice owners and highly compensated employees are unable to save as much as they want to save .
Safe Harbor 401(k)s, on the other hand, have been designed to allow owners and highly compensated employees to bypass discrimination testing and save as much as the Internal Revenue Service code allows employees and owners can make pre-tax salary deferrals up to $18,000, plus a catch-up contribution of up to $6,000 for individuals age 50 and older, with no discrimination testing. Employee contributions occur before taxes, so they can reduce an employee’s taxable income.
With traditional 401(k) retirement plans, the participation level of your employees can determine the amount of your salary that you are able to defer from current taxes. The Safe Harbor 401(k) can be attractive to small business owners with employees due to the ability to maximize the salary deferral of highly compensated employees without discrimination testing.
Do I have to make the maximum contribution if I choose a Safe Harbor 401(k)?
Not at all. You have the flexibility to make any contribution up to the maximum amount. A Retirement Program Specialist can help you understand your options.
How much salary can I defer?
For the tax year 2016, you can defer as much as $18,000. Any participants over the age of 50 may make additional "catch-up contributions" of up to $6,000.
How do contributions to a Safe Harbor 401(k) work?
You have a choice of two ways to structure contributions:
(1) Non-Elective Contribution – The employer contributes at least 3% of pay for all eligible employees, regardless of whether employees make salary deferral contributions.
(2) Matching Contribution – The employer provides a dollar-for-dollar match on the first 3% of pay an employee defers, plus 50 cents on the dollar for the next 2% of pay deferred. (For example: An employee deferring 5% of pay receives a maximum 4% matching contribution.) Other matching contribution amounts are available. Please ask your Retirement Program Specialist for more information.
If you set up your Safe Harbor 401(k) plan through the ADA Members Retirement Program, we’ll provide assistance that helps determine contributions to the plan for yourself and your employees.
Employers can make the maximum contribution for themselves, regardless of employee participation levels. In addition, employers may contribute the maximum to a profit-sharing plan or other qualified pension plan. (Subject to the IRS contribution limits and non-discrimination testing.)
Please note, also, that with a Safe Harbor 401(k) you must give all eligible employees annual notice of the plan provisions and their right to participate. Also, it should be noted that unlike standard 401(k) plans, employer contributions are mandatory in Safe Harbor 401(k) plans.
What is an “eligible employee”?
Employers must adhere to eligibility requirements established by the Internal Revenue Service Code. An eligible employee is generally any employee who has:
- Attained age 21 and
- Completed 1 year of service that included 1,000 hours of employment
Who can open a Safe Harbor 401(k)?Any of the following:
- Limited Liability Companies (LLCs)
- Incorporated businesses
- Sole proprietorships
- Partnerships, including subchapter S corporations
Why choose AXA Equitable?
Your association has arranged with AXA Equitable Life Insurance Company to provide the ADA Members Retirement Program as a benefit to its members. A Safe Harbor 401(k) can be funded with the ADA Members Retirement Program group variable annuity. AXA Equitable is among the largest life insurance companies in the US. AXA Equitable’s financial strength has consistently been reviewed by independent rating agencies.
The ADA Members Retirement Program has made it possible for thousands of ADA professionals to have the opportunity to grow their retirement assets as they grow their practice. The ADA Members Retirement Program provides human and online service, a diverse range of investment options, vast informational resources, and a competitive fee structure. In fact, generally only much larger practices can get what you can get from the ADA Members Retirement Program.
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"AXA" is the brand name for the AXA Equitable Financial Services, LLC family of companies, including AXA Equitable Life Insurance Company. AXA S.A. is a French holding company for a group of international insurance and financial services companies, including AXA Equitable Financial Services, LLC. The obligations of AXA Equitable Life Insurance Company are backed solely by its claims-paying ability.
The ADA Members Retirement Program (Contract Form #5108) is funded by a group variable annuity contract issued and distributed by AXA Equitable Life Insurance Company (New York, NY 10104, 212-314-4600).
Please consider the charges/ risks/ expenses/ and investment objectives carefully before purchasing a variable annuity. For a prospectus containing this and other information please contact a financial professional. Read it carefully before you invest or send money.
A group variable annuity is a long-term financial product designed for retirement purposes. In essence, a group variable annuity is a contractual agreement in which payment(s) are made to an insurance company on behalf of retirement plan participants, which agrees to payout an income or a lump sum amount at a later date to those participants. There are contract limitations and fees and charges associated with group variable annuities, which include, but are not limited to administrative fees and charges for investment management. Amounts in the annuity's variable investment options are subject to fluctuation in value and market risk, including loss of principal. Withdrawals from annuities are subject to an additional 10% federal income tax penalty. Withdrawals may also be subject to a contractual withdrawal charge. Contact a Retirement Program Specialist for costs and complete details. An annuity contract that is purchased to fund a retirement plan should be done so for the annuity's features and benefits other than tax deferral. For such cases, tax deferral is not an additional benefit. You may also want to consider the relative features, benefits, and costs of this annuity with any other investment that you may have in connection with your retirement plan or arrangement.
Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor.