Catch up Contributions

Tell me more about Catch up Contributions with 401k plans. Who can make them and why is it important to know about these contributions?- Wallace M. Linn, Wichita, KS 67202

Catch up contributions allow employees to make up for a late start in saving for their retirement. If an employee is nearing his retirement age and has very little set aside to live on once he crosses this age, it is very important for him to maximize the savings he can put aside right away. Catch up contributions actually give him a second shot at making retired life financially secure. That is why it is important for your employees, especially those who are older, to know about these contributions.

The IRS regulations say that employees who have crossed the age of 50 can make catch up contributions to their 401k account. In effect, these employees can make their regular contributions and also add in an extra bit to make up for lost years. Different kinds of 401ks allow different catch up contributions which is why it makes things much easier for you, the employer, to sign up for a DIY 401 suite like These packages are constantly updated with the most recent IRS limitations and rules. You can always be sure of staying within the law when you administer the plan using this software. Remember that during times of inflation, the IRS usually allows bigger catch up contributions and vice versa so the rules are prone to fairly frequent changes.

If you do intend for your older employees to be able to save more for their retired life, make sure that you add the provision for catch up contributions to your plan right at the outset. Although the law does not make it mandatory for you to include this provision, adding it to your plan is a good way to keep your employees happy. Do remember that without this provision in your plan document, you cannot allow catch up contributions to the plan.

Avoiding Middlemen in your 401k Plan

Is there any way in which I can interact directly with mutual fund companies when I or my employees want to invest 401k funds in these investment products? I would like to avoid paying charges to any third parties and keep my 401k plan affordable.- James J. Silver, runs a interior decoration business in Madison, WI 53703.

Yes, you can set up a 401k plan that lets you interact directly with mutual fund companies when you want to add these investment products to your plan. There are a number of run- it- yourself 401k plans on the internet that let you do this. By choosing a tried and tested plan like the one offered by, you can make plan administration easy and quick and also avoid paying charges and fees to middle men.

Administration of these DIY 401k plans is quite easy once you take a look at the demo offered by the provider. You can actually set up the plan and have it ready to go without having to hire outside help. Once your plan is up and running, it takes just about 15 minutes for you to update records each month. Make sure that you choose a DIY 401k plan that you can customize to your specific needs. This will let you choose the investments that your employees and you are most likely to use. It will also give you the greatest flexibility in terms of making changes at a future date if the need arises.

The best part about such DIY software suites is that they are very cost effective when compared with the plans that large providers establish and administer for you. You can literally save thousands of dollars every year with these easy to use plans because there is no administration fees involved when you manage the plan on your own. Try out a free download of the software suite before you sign up to ensure that you can follow the instructions and manage the plan easily.

Low Cost 401k Plans

I want to offer my employees a 401k plan but I cannot afford to pay huge fees to administer it. Where can I find a low cost 401k plan that will suit my needs perfectly?- Santo E. Diamond, Saginaw, MI 4860, runs a delicatessen catering to his neighborhood.

Santo, establishing a 401k plan is a great idea for your employees and also for your business because of the many tax advantages it offers. Your employees are sure to appreciate the fact that you are helping them save for their future in the most effective way possible. In fact, many small businesses like yours find that talented youngsters prefer to come work for them when they have such plans to offer instead of bigger concerns that do not show as much concern for employees. But it is definitely important for you to set up a plan that you can easily afford.

Typically, 401k plans offered by large providers end up quite expensive for the small business owner. That’s why, in recent times, DIY plans have become really popular, especially among small businesses like yours. You will find such DIY plans at sites like where there is also a lot of information about 401ks in general and the DIY plans in particular.

These plans let you eliminate the huge administrative fees that you would be paying your plan provider. In fact, by handling the plan administration in- house, businesses like yours have saved thousands of dollars each year. Such plans come with detailed instructions on how you can manage the account, update records and track the plan so that you can administer the plan yourself like a pro within a short time. Even if you have an existing plan with another provider you can convert to a DIY 401k suite like this one with the minimum of fuss and hassle. In your case, you can simply set up your very first DIY plan with a site like this one in minutes and ensure that you provide a great way for your employees to save for retirement without burning a hole in your pockets.

Nondiscrimination Testing with 401k Plans

I want to set up a 401k plan for my auto parts shop. Do I need to ensure that it complies with the nondiscrimination regulations year after year? Michael P. Ladd, Oklahoma City, OK 

A 401k plan is a retirement benefit plan that was created with the intent of allowing employees to save in an effective manner for their future. The many benefits and tax advantages offered with these plans are all established in line with this objective. This is also the reason why the government insists that these plans are offered to all employees irrespective of their position within your business or the total compensation they earn.

To get all the tax benefits that a 401k plan offers to participants, it should give benefits to all employees, including the rank and file staff. A plan that only benefits the business owner or top level management fails to pass theIRS’s non discrimination test. This test compares the plan’s participation as well as contributions made by rank and file employees with those of top level employees and the owner/ management.

Annual testing is mandatory for all regular/ traditional 401k plans to verify that they are non discriminatory. Through this testing it is verified whether the contributions made on behalf of rank and file employees is in proportion with that made for the top brass of your business.

If you want to avoid getting into the testing and verification loop then aSafeHarbor401k is the right 401k plan for your business.SafeHarborplans are exempt from the annual non discrimination testing that is required for the other 401k types. This plan has some inbuilt features that ensures that all employees are given equitable treatment when it comes to contributions.

Talk to an investment advisor to know more about Safe Harbor 401ks and the advantages they offer for your business. If you will be using a DIY 401k package like, you can browse through their website or ask their support staff for help on setting up and managing aSafeHarbor plan.

Safe Harbor 401k

Should I set up a Safe Harbor 401k plan for my employees? Is this a better option than other 401k types and why? – Larry E. Davis, Newark, NJ, runs a ready- to- eat foods business.

A Safe Harbor 401k plan was introduced to the American public as a retirement savings plan that was simpler than the regular plans available to employees. The safe harbor plan lets employers meet the non discrimination requirements for retirement benefit plans in a much easier way. A highly compensated employee gets the same treatment as one who is lower on the salary scale with this kind of 401k plan. This is definitely in the interests of your employees because they need not fear any unfair distribution of employer contributions.

With a Safe Harbor 401k all your employer contributions are vested with immediate effect. You are required to keep the employees informed of their rights as regard this plan at all times. In short, a 401k plan is a more equitable and highly transparent retirement savings plan. This is one main reason why employees prefer this kind of plan.

If you set up this kind of plan for your business, you can match every eligible employee’s contribution fully up to a maximum of 3% of his total compensation. Beyond this max limit, you can match his contribution 50 cents to every dollar up to 5% of his total compensation. Otherwise you can opt for a 3% non elective contribution to all eligible employees. Keeping track of the employees contributions and your matching inputs can become a very complex task unless you are using a DIY package. Choose a fully featured 401k software package like that has the advantage of a budget price to keep your overall costs well within your means.

Self Directed Brokerage Accounts

My employees want me to set up a 401k self directed brokerage account. What are the special advantages of such plans?- Edward L. Pittman, KensingtonKS runs a confectionary shop.

A Self Directed 401k plan gives the employee a great deal of control over his investments. Each of your employees is likely to have different investment objectives. An ideal 401k plan is one where each can decide where to invest and also manage investments individually. When you offer them a self directed 401k plan that has a whole host of low cost investments, retirement planning becomes easy for them. With such a plan every employee can optimally use the 401k plan to save the maximum amount in the investments that are best suited to his needs. This is probably why your employees want you to set up a self directed 401k brokerage account in your business.

You can open such an account with firms like Charles Schwab or Fidelity using a DIY software package like Such packages allow the employee to manage and track his retirement planning account on his own. This specific 401k plan lets your employees invest in several attractive investments other than those offered directly by Schwab.

For you, the employer, a self directed 401k plan is a good money saver. This is because you can process all the data pertaining to the plan within your organization. You avoid incurring the cost of hiring a plan administrator to take care of the plan’s assets and to manage the plan.

In addition, by offering a plan that gives employees this degree of control over their retirement saving, you can improve employee loyalty. A flexible 401k plan with a good choice of investments makes your business a desirable employer. This means that this plan will help attract the best talent in the market to your business.