Frequently Asked Questions
Have a look at frequently asked questions & answers to understand more.
It may not exceed 25% of income or 20% of the IRC Section 401(a)(17) limit ($270,000 for 2017) for qualified plans ($54,000 in 2017).
From a purely economic perspective, the ideal candidate is an employer with less than 10 employees with an owner(s) earning a substantial & stable income (over $250k per year) who is older than the employees.
Depending on the age & income of the group, it is possible to generate tax deductible benefits of $225k or more per year.
While the plans are similar, a 401(k) Plan does offer some key advantages such as:
- Ability to customize the plan design in terms of eligibility & employer contribution levels
- Higher deferral limits for employees ($18,000 for 2017 vs $12,500 for the SIMPLE-IRA) – higher “catch-up” contributions as well ($6,000 for 2017 vs $3,000 for the SIMPLE-IRA)
- Ability to add a Roth feature for deferrals
- Much higher maximum employer contribution if that’s desired
- Ability for participants to borrow from the Plan if that’s desired
A TPA can be a valuable resource to provide outside expertise, independent advice, a dedicated consultant vs a call center an to reduce your administrative burdens.
New Comparability is a feature in a profit sharing plan that enables the plan sponsor to vary contributions by participant (usually to steer higher amounts to owners or key staff). This option works best where the target group is older than the non-target group. The “allocation rate” or % of pay for a Highly Compensated Employees (“HCE”) may not be more than three times that of a Non-Highly Compensated Employee (“NHCE”) unless the rates for such NHCE is at least 5.0%.
For 2017, a Highly Compensated Employee (“HCE”) is one who earned at least $120,000 from the employer in 2016 or owned at least 5.0% of the interest in the business during the current or preceding year.