Jay joins Financial Fridays on Vegas All Net Radio as a guest speaker.

For the most part, pension plan limitations were not adjusted for cost of living from 2015 to 2016. This is because the increase in the cost-of-living index was not significant enough to merit adjustment. There were, however, some other limitations that were changed. The limitations that were changed from 2015 to 2016 are as follows:

• For an IRA contributor who is not covered by a retirement plan but whose spouse is covered by a retirement plan, the joint income level at which the deduction is phased out has increased from $183,000 – $193,000 in 2015 to $184,000 – $194,000 in 2016.

• For married couples filing jointly, the AGI phase-out range for Roth IRA contributions has increased from $183,000 – $193,000 in 2015 to $184,000 – $194,000 in 2016. For singles and heads of household, the income phase-out range has increased from $116,000 – $131,000 in 2015 to $117,000 – $132,000 in 2016.

• The AGI limit for the saver’s credit (alternately known as the retirement savings contribution credit) for low to moderate income workers has increased. For married couples filing jointly, it has increased from $61,000 in 2015 to $61,500 in 2016. For heads of household, it has increased from $45,750 in 2015 to $46,125 in 2016. For singles and married individuals filing separately, it has increased from $30,500 in 2015 to $30,750 in 2016.

The 401(k) plan contribution limits for 2016 are unchanged from 2015:

• Maximum Elective Deferral: $18,000
• Maximum Catch-Up (Age 50+): $6,000
• Annual Addition Limit*: $53,000

*Limit is per person, across all defined contribution plans and contribution types (besides catch-up contributions).

Jay joins Financial Fridays on Vegas All Net Radio as a guest speaker.

Jay joins Financial Fridays on Vegas All Net Radio as a guest speaker.

There are many advantages to adopting a Safe Harbor 401(k) plan or adding Safe Harbor 401(k) provisions to an existing  profit sharing plan. The deadline to implement Safe Harbor for the 2015 plan year is October 1, 2015. By making a relatively modest Safe Harbor contribution, employers stand to gain huge benefits – business owners and other crucial employees can make large contributions to the plan that would be impossible otherwise.

Consider the benefits of adopting a Safe Harbor 401(k) plan:

• A Safe Harbor contribution may be made in the form of a matching contribution or a profit sharing contribution. Integrity Pension Services works with employers to determine which type of Safe Harbor contribution will provide the most value.
• Safe Harbor plans are exempt from certain compliance testing. Therefore, business owners may contribute the maximum salary deferral amount without fear of failing ADP testing (2015 limit is $18,000 with $6,000 additional “catch-up” if age 50 or higher).
• Using cross-testing, Integrity Pension Services can help employers make the maximum contribution per participant with a profit sharing contribution (2015 limit is $53,000 up to $59,000 with catch-up). Safe Harbor contributions are counted in cross-testing, further increasing the value to employers.
• By adding “maybe Safe Harbor” provisions to a 401(k) plan, employers can decide on a year-to-year basis whether or not they wish to make a Safe Harbor contribution. This way, contributions can be avoided for plan years in which they will not provide sufficient value to the employer (i.e. the employer does not plan to make large personal contributions to the plan).

The bottom line: Safe Harbor provisions significantly enhance any 401(k) plan. Making a Safe Harbor contribution is the most cost effective option for an employer who intends to make large contributions into his or her 401(k) plan. Don’t miss the October 1^st deadline to adopt a Safe Harbor 401(k) plan or add these features to your existing profit sharing plan.