When Employees are Hired -The Safe Harbor Solution for Your Solo 401k Plan

Solo 401k plans are, by design, one participant plans, designed for company owners, partners and family businesses without common law employees.

Interest in Solo 401k Plans picked up after the passage of Economic Growth and Tax Relief Reconciliation Act of 2001 (also known as EGTRRA 2001). Prior to the passage of EGTRRA, previous regulations limited the maximum deduction limit to 25 percent of compensation for combined employer profit sharing, match and employee salary deferral contributions to the plan.

The enactment of EGTRRA took Employee Salary Deferrals out of the deduction calculation. With the passage of EGTRRA, employee deferrals were no longer part of the deduction limit calculation. Only the employer contributions were limited to up to a deduction limit of 25 percent of the employees compensation.

Employee deferrals are no longer subject to the deduction limits of employer contributions. In 2009, that difference is an additional $ 16,500 in salary deferrals. Plus $ 5,500 more for those age 50 and older. These changes created an opportunity for sole proprietors to maximize their contributions toward retirement and reduce the taxes paid to the IRS.

The Solo 401k plan is a no brainer when it comes to tax and retirement decision for business owners who do not have any employees, other than themselves and their spouse. However, if the business grows and the employer hires regular employees, the deduction and contribution advantages of the Solo 401k Plan can disappear.

If employees are hired and the new employees meet the eligibility requirements of the plan, they must be allowed to participate. With new employees, the Solo 401k plan, with its immediate eligibility and 100 percent vesting can become expensive for small employers.

So do the new requirements for non discrimination testing of employee salary deferrals, employer match and employer profit sharing? And if a plan is top heavy (where the key employees hold more than 60 percent of the plan assets) additional employer contributions of 3 percent of compensation will need to be paid to the accounts of the new employees.

The plan also comes under the Fiduciary requirements and the Reporting responsibilities of Title I of ERISA. And should the new employee decide not to contribute to the plan, the non discrimination rules prevent the employer from making any salary deferrals at all. On top of all that the cost of administering the additional plan requirements will often triple.

What to Do When You Know You will be Hiring New Employees?

You know in advance that you will be hiring new employees. If you will want to continue the contribution amounts and tax deductions you have been making, there is a temporary and a longer term solution.

The temporary solution is to change the eligibility period for participation from immediate to one year. The change in service eligibility will only allow you to continue making higher contributions and tax deductions until the end of the plan year in which the new employees works 1000 hours or 12 months. After that point in time, you will not be able to enjoy the tax and retirement advantages unless you employ the longer solution.

The longer solution is to amend you Solo 401k plan into a Safe Harbor Plan.
A Safe Harbor plan provides the following benefits to employers:
1. The non discrimination testing is automatically deemed to pass
2. Employers can contribute up to the maximum salary deferrals limit
3. If a plan is top heavy the safe harbor satisfies the top heavy contribution requirement
4. Safe Harbor Matching contributions are only provided to employees who make salary deferrals.

The costs of the Safe Harbor plan include additional reporting plus a 100 % vested Safe Harbor matching contribution of up to 4% of salary deferrals made by employees that actually contribute.. Administration costs can be offset by the $ 1500 tax credit the government provides for 401k plans with employees started after 2002. A quick Cost/Benefit analysis should convince any employer that the long term decision requires serious consideration.
Sabung Ayam
Frank Ocean – Solo



Hand me a towel I’m dirty dancing by myself
Gone off tabs of that acid
Form me a circle, watch my jagger
Might lose my jacket and hit a solo
One time
We too loud in public then police turned down the function
Now we outside and the timing’s perfect
Forgot to tell you, gotta tell you how much I vibe with you
And we don’t gotta be solo
Now stay away from highways
My eyes like them red lights
Right now I prefer yellow
Red-bone, so mellow
Fuck ’round, be cutting you
Think we were better off solo
I got that act right in the Windy city that night
No trees to blow through
But blow me and I owe you
Two grams when the sunrise
Smoking good, rolling solo
Solo, solo
Solo, solo
S-solo, solo
S-solo, solo
It’s hell on Earth and the city’s on fire
Inhale, in hell there’s heaven
There’s a bull and a matador dueling in the sky
Inhale, in hell there’s heaven
Oh, oh, oh, oh
Oh, oh, oh, oh
Solo, solo
Solo, solo
I’m skipping showers and switching socks, sleeping good and long
Bones feeling dense as fuck, wish a nigga would cross
And catch a solo, on time
White leaf on my boxers, green leaf turn to vapors for the low
And that mean cheap, cause ain’t shit free and I know it
Even love ain’t, cause it’s enough cost, that clinic kill my soul
But you gotta hit the pussy raw though
Now your baby momma ain’t so vicious, all she want is her Pickett fence
And you protest and you picket sign, but them courts won’t side with you
Won’t let you fly solo
I wanted that act right in Colorado that night
I brought trees to blow through, but it’s just me and no you
Stayed up ’til my phone died, smoking big, rolling solo
It’s hell on Earth and the city’s on fire
Inhale, in hell there’s heaven
There’s a bull and a matador dueling in the sky
Inhale, in hell there’s heaven
Oh, oh, oh, oh
Oh, oh, oh, oh
Solo, solo
Solo, solo
By myself
Solo, solo
Solo, solo

Sabung Ayam