Government Deadline for Small Businesses to Start 401(k) Fast-Approaching
Small Businesses Seeking to Maximize Tax-Deferred Contributions for 2011 Have Until September 23 to Purchase Safe Harbor 401(k) Plan
SEATTLE — Small business owners looking for major tax relief in 2011 have about four weeks to get set-up with a Safe Harbor 401(k) plan, according to ShareBuilder 401k a leading provider of retirement plans for small businesses. To ensure each plan is established by October 1, providers typically require businesses to purchase their plans one to two weeks prior.
The most popular type of 401(k) for small business owners with employees is called a Safe Harbor 401(k). The Safe Harbor deadline represents the last chance each calendar year for small businesses to start a 401(k) plan that lets owners contribute the maximum allowed and automatically satisfies common IRS tests associated with 401(k) plans. The government-mandated deadline for launching a Safe Harbor plan is October 1, but the real deadline for small business owners is generally between September 15 and 23 as it can take 401(k) providers five to ten business days to get a new plan up-and-running. ShareBuilder 401k’s deadline for hearing from customers is September 23.
“With back to school season in full swing, it’s easy for small businesses to take their eye off the ball when it comes to this important deadline for their business,” said Stuart Robertson, general manager of ShareBuilder 401k. “Each year we try and bring it to their attention with enough lead time to prepare and take advantage.”
While matching is not a requirement with 401(k) plans, many small business owners’ contributions are restricted well below the maximum allowed when selecting a traditional plan without the Safe Harbor. Safe Harbor plans allow business owners to contribute the maximum deferral amount to their own account – $16,500 in 2011 or $22,000 if 50 years of age or older – and automatically satisfy the IRS non-discrimination testing associated with 401(k) plans. By providing a small “safe harbor” match – the amount the employer puts into an employee’s 401(k) account as a percentage of an employee’s salary – any employee including the owner can give the maximum to the plan and receive the match.
This match is what helps the business avoid the hassles of government discrimination testing. It’s also what enables owners and highly compensated employees to have the ability to contribute the maximum allowable and tax-defer a significant amount of their earnings. This both helps lower personal taxes in the current year and the match will be tax deductible for the business too. And if this is the first 401(k) plan for a business with less than 100 employees, the company will typically receive up to $500 tax credit each year for the first three years of the plan to help offset administration costs.
Unlike traditional 401(k) plans that rely primarily on mutual fund offerings, ShareBuilder 401k plans are comprised of exchange-traded funds (ETFs). As ShareBuilder 401k is not a fund provider, it takes an unbiased approach in the evaluation and selection of funds with a focus on low-expense investments from the leading ETF providers such as Vanguard, iShares, SPDR and PowerShares to create a great line-up from which participants can choose, including five model portfolios.
All ShareBuilder 401k products offer the latest features including auto-enrollment, auto-re-balancing, Roth, signature-ready 5500s and much more. The plans are typically priced significantly less to start up and administer than traditional providers. Additionally, each plan is fully-supported with access to 401(k) consultants, customer success managers, implementation specialists and customer care for each participant.
About ShareBuilder 401k
ShareBuilder 401k provides easy, affordable and smart 401(k) retirement plans for small businesses ranging from the self-employed to those with 500 or more employees. ShareBuilder 401k is a leader in providing 100 percent index-based ETF investments (plus a money market) in 401(k) plans. ShareBuilder 401k offers a suite of on-demand services that make it simple for employers and employees to open and manage their retirement plans online at www.sharebuilder401k.com. ShareBuilder 401k plans provide market-efficient investments and model portfolios that make it easy for employees to select the smart investments to help them get on track to meet their retirement goals. Customers can also take advantage of ShareBuilder 401k consultants, customer success managers, and customer care agents to receive assistance in choosing and managing their retirement benefits.
Dan Branley, Launch Communications