How To Improve Upon an SEP or SIMPLE

Many small business owners would do much better by using a Safe Harbor Cross Tested 401(k) instead of a SIMPLE or SEP. For example, suppose the business owner of a corporation takes $245,000 in compensation and wants the maxium contribution of $49,000 in an SEP. That would be a 20% of compensation contribution. In an SEP, if you want to put away 20% for the owner, you generally have to contribute 20% of salary for each eligible employee. If you had just two employees making $50,000 each, that would be $10,000 each or $20,000 total in contributions for them.

Alternatively, with a Safe Harbor Cross Tested 401(k), it might be possible to contribute 5% of pay or less for the support staff while still maxing out for the owner. Go to the 401(k) Academy Website and navigate to the Materials page and then take a look at the five case studies that illustrate the concept. The SEP is an okay solution for many companies but the Safe Harbor Cross Tested 401(k) might be a far better solution for many others. Even with only one or two support employees, the savings could be thousands of dollars. In our example, if the contribution was 5% for each employee, the total would be $5,000. This would be $15,000 in savings. Yes, you would have to pay to administer the 401(k) plan, but if that was $2,000 a year you would still have $13,000 per year in savings. For the concept to work, we need about half of the employees to be somewhat younger than the business owner.

http://www.401kacademy.com/supportmaterials.htm

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