Make Your 401(k) Plan Work as Hard as You Do
Successful small business owners frequently wish they could supercharge their retirement savings through their company-sponsored 401(k) plans. Unfortunately, their plan design often holds them back.
It's not well known, but there is a special type of plan design that can dramatically increase retirement savings for business owners. It's called a New Comparability 401(k) plan.
It just might be the hardest working plan out there.
To find out if your business could benefit from starting a New Comparability plan, please
call Justin Lueger at 785-334-4100
FAQ: New Comparability
How does a New Comparability 401(k) plan work?
A New Comparability 401(k) plan allows business owners to make substantial contributions to their retirement accounts -- more than they could with a standard 401(k) plan. By maximizing retirement contributions, business owners also maximize the built-in tax advantages of their 401(k) plans. The key is allocating a greater share of profit sharing contributions to the business owner(s).
How much more could I add to my retirement account each year?
It depends on your unique situation. Several factors come into play -- for instance, the design of your current plan, your age, the age of your employees, and compensation levels.
What's the catch?
In order to maximize your contributions in a New Comparability plan, you will be required to make certain minimum contributions to all other employees. The required contributions to your staff would be the lesser of (a) 5% or (b) 1/3 of the contribution percentage allocated to your account. Invisor will help you determine which option is most advantageous.
How will this pass nondiscrimination testing?
401(k) plans must provide benefits that are roughly equal to all employees. So how can a New Comparability plan pass nondiscrimination testing and allow you to increase your share of employer contributions? The solution is to measure the value of contributions at each employees’ projected retirement date, rather than in today’s dollars. This seemingly small modification can make a big difference in the amount you can allocate to your account.
Can any employer utilize a New Comparability 401(k) plan design?
Theoretically, any employer can utilize a New Comparability plan design. Practically speaking, though, the design works best if you have the following:
- Less than 100 employees
- A fairly young employee base
- Older business owners / key employees
Will this work with my existing 401(k) plan?
Absolutely. Invisor can simply add the New Comparability feature to your current plan. Depending on your situation, however, we may recommend additional changes to your plan design. In many circumstances, the most powerful combination is to pair the New Comparability feature with a Safe Harbor plan design. This combination eliminates the headache of certain testing requirements and usually allows you to maximize your retirement savings.
Are there situations in which a New Comparability design doesn't work?
If you have significant employee turnover, a New Comparability plan design may not be a good fit. It can lead to fluctuations in the projected contributions amounts, which leads to less certainty in maximizing your contributions. Also, if you have younger family members working for your business, a New Comparability plan design may not be a good fit. Having family involved typically reduces your flexibility in maximizing your retirement savings as a business owner.