September '15

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rv-pro.com SEPTEMBER 2015 • RV PRO • 123 of the IRS Code. These plans are popular because they allow contributions by both employer and employee and they allow a high level of contributions. Also, unlike the SIMPLE IRA plans, these plans can be used by businesses with more than 100 employees, as well as by smaller employers. Employees may contribute up to $16,500 annually (and an additional $5,500 for those 50 or older). The employer may also opt to contribute to each employee's retirement account. The maximum allowed combined contribu- tions are the lesser of 100 percent of each employee's compensation, or $49,000. 401K plans have a comprehensive rule for eligibility: Users are pretty much required to include everyone who is age 21 or older. And there is a significant new record keeping hurdle: The requirement to pass an annual "non-discrimination test" to make sure that benefits to owners and highly compensated individuals do not exceed established limits. Finally, business owners using such a plan must file an annual return with the IRS for their 401K plan, adding to the usual tax overhead headache. Sail into Harbor Sometimes owners find an annual dis- crimination testing too onerous. Or, they may have only a few highly compensated individuals who want to be able to con- tribute more to their retirement than what is allowable under the rules of the regular 401K plan. That's why the IRS has established what's called a "Safe Harbor 401K." These plans are deemed non-discriminatory and do not require an annual test. Safe harbor plans can be great for the small shop with highly compensated owners or managers. The reason is that employees might only want to contribute a small percentage of their salaries. But the owners can put in much more, unlike a plan that is not a safe harbor plan. Here's the catch: Business owner enjoy their safe harbor by agreeing to a new requirement. They must either match each participating employee's contribution (up to 3 percent of the employee's compensa- tion), or they must make an across-the- board contribution equal to 3 percent of each eligible employee's compensation. Cover Your Bases This article has covered only the high- lights of each type of retirement plan. Busi- ness owners may also want to look into profit sharing plans and defined benefit plans, both of which are more complex to estab- lish and maintain but allow for greater levels of contributions toward retirement. Bear in mind that employers often main- tain more than one type of plan. Whatever route business owners take, experts advise owners to get advice from their accountant and attorney. And consider taking on the assistance of a consultant who specializes in employer-sponsored retirement accounts. Experts interviewed for this article sug- gested picking one who does not have a vested financial interest in a given plan. "It's not easy to find someone who does not have an axe to grind," says Milberg, of Milberg Consulting. "The financial services industry sees retirement plan assets as a pot of gold." He says an advisor should be able to help business owners file the annual paper- work for those plans requiring it, and assure owners they are making the correct contri- bution amounts. "Errors are often made with retirement plan designs," says Tracy Davidson, presi- dent of Davidson Pension Consulting of Larkspur, Calif. "You need to make sure you understand the rules." Errors, she cautions, can result in costly tax liabilities.

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