From
Your Perspective:
Small business retirement plans
401(k)s
You may think a
401(k)
is only for larger businesses, but you may find that this option is less complex and more affordable than you thought. As more financial services firms aim for the small business market, prices for administration have been dropping. The drawback is that the rules for keeping a plan in compliance with the law can be quite strict.
There are actually several versions you might consider, in addition to the solo 401(k) if you’re self-employed or the only employee. Those options are a conventional 401(k), a Safe Harbor 401(k), and a SIMPLE 401(k). All three are
salary reduction plans,
and all require
vesting
schedules. But there are some major differences you’ll want to weigh before making a choice.
Those variations include:
What the contribution limit is
Whether the employer must contribute
What federal nondiscrimination testing
must be done
401(k) nondiscrimination testing is designed to ensure that the plan is fair to all employees, and that highly paid employees don’t benefit more than everyone else at the company.
