A traditional 401(k) plan may require annual nondiscrimination testing to ensure contributions do not favor highly compensated employees. A Safe Harbor 401(k) avoids this testing by requiring mandatory employer contributionsโeither matching or non-electiveโfor all eligible employees. Safe Harbor plans are popular among small businesses that want to ensure full participation by owners and key employees without risk of refunding contributions.
Any businessโregardless of size or structureโcan offer a 401(k) plan. This includes sole proprietorships, partnerships, LLCs, corporations, and nonprofits. Plans can be tailored for businesses with one employee (such as the owner) or hundreds of employees, depending on your objectives.
Employees can contribute up to the annual IRS limit through salary deferrals. Additional โcatch-upโ contributions are allowed for participants age 50 and older. These limits are adjusted annually.
Yes. Employers can choose to offer matching contributions (e.g., 100% of the first 3% of employee pay) or profit-sharing contributions. These contributions are typically tax-deductible and can be designed to support specific compensation or retention strategies.
Yes. Employee contributions are made pre-tax, reducing taxable income in the year of the contribution. Employer contributions are deductible as a business expense. Investment growth within the plan is tax-deferred until funds are withdrawn in retirement.
Many 401(k) plans offer a Roth option, which allows employees to make after-tax contributions. Qualified withdrawals of Roth 401(k) earnings are tax-free in retirement. Participants can split their contributions between traditional and Roth if the plan permits it.
Withdrawals are allowed upon reaching age 59ยฝ, retirement, disability, death, or other qualifying separation from service. Early withdrawals before age 59ยฝ are generally subject to a 10% penalty in addition to income tax unless an exception applies. Required Minimum Distributions (RMDs) begin at age 72.
Plan sponsors are responsible for ensuring the plan remains in compliance with IRS and Department of Labor regulations. This includes annual nondiscrimination testing (unless Safe Harbor), timely remittance of employee contributions, Form 5500 filing, and participant disclosures. Global Advisers partners with third-party administrators and recordkeepers to handle these duties on your behalf.
Yes. Many plans combine a traditional 401(k) with a profit-sharing component, allowing the employer to make discretionary contributions on top of employee deferrals. This structure is common in plans seeking to maximize contributions for owners and key employees.
Investment menus can be customized and may include mutual funds, ETFs, target-date funds, model portfolios, or self-directed brokerage windows. Global Advisers provides professional investment oversight and works with plan sponsors to design a menu that reflects the needs of participants and fiduciary standards.
Employees can leave their 401(k) funds in the plan, roll them over to an IRA or a new employerโs plan, or cash them out (which may trigger taxes and penalties). The employer has responsibilities regarding timely notification and options available to the participant.