Best savings plan for small business owner
My small business will be debt free in the near future and I’m looking for a way to max tax-deferred savings. Currently have 8 employees all part time though a few work 35 hours a week the max yearly earnings for the highest paid is about $24K a year the rest less or significantly less. I expect to clear about $125K a year when debt free and don’t need the income since I have another source to live on. With the Safe Harbor 401K I can save $62K a year (will be 55 when debt free) from what I’ve read my question is the test for profit sharing. Reading the options a straight 3% contribution would be best I doubt any will want to make contributions to the 401K. With the 19K contributions, 19K match will I be able to do the other $24K from profit sharing with no issues with the nondiscrimination testing? That leaves me with another $63K I guess I can put into taxable funds. Thanks for any info.
The answer to your question would really depend on your particular circumstances. For this reason, it would probably be a good idea to confirm things with an accountant. However, based on what you’ve outlined above, I think you should be able to contribute close to what you’ve outlined. You would only be able to contribute $18k per year. The extra $6k is only for plan participants who are over the age of 50, and I believe they’re made in the form of normal deferrals (not profit-sharing, but also not matched).
The other caveat related to profit-sharing is that you would be required to make equivalent contributions for all of your employees that you make for your own account, relative to income. For example, if you earn $100k and make a profit-sharing contribution for yourself of $10k, you would need to contribute 10% of each of your employees earnings as a profit-sharing contribution as well (unless you and your plan administrator settle on another formula for dividing up profit-sharing contributions).
Hope this helps. Best of luck!