Employees rely on a solid 401(k) plan for its tax-advantages in saving for retirement. For employers, selecting and managing the right 401(k) plan may seem challenging. Staying Compliant Companies who want to offer 401(k) savings plans to their employees must ensure their plans strictly follow the rules and stay compliant. Key 401(k) regulations require employees to undergo annual nondiscrimination tests to prove a plan doesn’t unfairly favor certain employees over others. Falling out of compliance may lead to significant headaches and financial consequences, which is why so many businesses turn to adding a Safe Harbor provision to their 401(k)s. What is a Safe Harbor 401(k) and how does it benefit my company? Safe Harbor 401(k)s have become one of the most popular retirement plans in large part because they automatically pass the annual Actual Deferral Percentage (ADP) test, the Actual Contribution Percentage (ACP) Test, the top heavy test and the coverage test. These tests analyze the actual deferral percentage and actual contribution percentage and review the savings rates of highly compensated employees as compared to other employees. For 2019, employees earning more than $125,000 are considered highly compensated employees. Selecting a Safe Harbor provision for your 401(k) enables owners to avoid these IRS annual compliance tests, maximize contributions to the plan, and ensure equal benefits and access for all employees regardless of their salary level. They differ from traditional plans in that employers are required to make annual contributions (on behalf of employees) which are immediately vested. Avoid Corrective Distributions (Refunds) Highly compensated employees and owners of business are never happy when they have been making contributions all year to their 401k and then find out that their company’s 401k plan has failed a test and because of the failure the employee has to receive part of their contribution. The reason for the refund is to being the 401k back into compliance.

Types of Safe Harbor Provisions

Here are the minimum requirements. You must meet ONE of the following to be considered a legal safe harbor plan:

  • Enhanced Safe Harbor Elective Match: Company matches 100% of all employee 401(k) contributions, up to 4% of their compensation. Employees are required to defer money to their 401(k) in order to qualify for the match, OR
  • Elective (basic match): Company matches 100% of all employee 401(k) contributions up to 3% of their compensation, plus a 50% match of the next 2% of their compensation, OR
  • Non-elective Safe Harbor: Company contributes 3% of each employee’s compensation, regardless of whether the employee also makes contributions
Benefits of a Safe Harbor provision in your 401(k)
    • Helps your company stay in compliance as it exempts your 401(k) plan from most annual compliance testing
    • Aids in recruiting, rewarding, retaining and engaging employees
    • Increases the likelihood that you and your highly compensated employees will max out your annual retirement contributions
    • Employer contributions reduce your taxable income
How do you make your plan a Safe Harbor 401k? Contact your third party administrator and ask them to review the employee census data to see which one of the 3 options fit your needs. At the same time have them prepare a plan amendment. With Safe Harbor 401(k) plans, the employer contributions are required each year and are immediately 100% vested. To be effective by January 1, Safe Harbor provisions must be established by October 1. Employers looking to convert or open a Safe Harbor 401(k) plan should turn to a professional financial advisor who can guide them through the process and help them determine how a retirement plan fits into their company’s overall objectives and financial goals. If you have questions or would like more information on whether a Safe Harbor 401(k) may be right for your company, send us an email at info@rubinwa.com.
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Matching Your Risk and Return: A Personalized Approach for Maximizing Your Financial Success
At Rubin Wealth Advisors, we believe that understanding your risk tolerance is the key to maximizing your financial potential. Traditional methods of categorizing risk with vague labels like conservative, moderate, or aggressive often lead to confusion. These terms can mean entirely different things to different people, which creates misalignment between your expectations and your investment strategy. That’s where problems can arise—and where opportunities can be missed.
 
We take a different approach. By using a precise, quantitative system to determine your Risk Number, we help you make informed decisions that directly benefit you. Your Risk Number is more than just a score; it’s a powerful tool that helps guide your financial strategy. If your Risk Number is 64, for example, both you and our team will know exactly what level of risk that involves and how it relates to potential returns. The guesswork is gone, replaced by clarity and confidence.
 
Here’s where it really benefits you: Understanding your Risk Number not only ensures that your portfolio is aligned with your comfort zone, but it also increases your chances of achieving a higher risk-adjusted rate of return over time. By matching your investments to your specific risk profile, you’re better positioned to optimize returns without taking on unnecessary risk—especially over a 3-5 year period, where market fluctuations can test even the most seasoned investor.
 
The process is simple and designed to serve your best interests. In just a few minutes, we’ll walk through a short conversation to determine your Risk Number. From there, we’ll craft an investment portfolio tailored specifically to you, ensuring that the level of risk is appropriate for your goals. This isn’t about avoiding risk entirely; it’s about taking on the right amount of risk so you can achieve the returns you need while remaining confident in your strategy.
 
By aligning your portfolio with your Risk Number, you gain the peace of mind to handle market volatility. You’ll know exactly how much downside risk is possible and what kind of upside you can expect. For example, a portfolio with a Risk Number of 64 might have a potential downside of -10% over six months but offers a possible 15% gain. This range helps you stay calm during downturns because you’ve already accounted for them, and it positions you to benefit when the market performs well.
 
We also stress-test your portfolio in various market conditions—such as economic downturns or inflation spikes—to ensure you’re always prepared. This proactive approach ensures your investments stay aligned with your risk tolerance, giving you the best chance for success regardless of what happens in the markets.
 
How does this benefit you? Managing risk properly allows you to maximize returns without exposing yourself to more risk than necessary. Over time, this careful balance increases the likelihood that you’ll achieve your financial goals—whether that’s building wealth, preparing for retirement, or preserving your assets.
 
At Rubin Wealth Advisors, a Boca Raton financial advisor, we’re committed to helping you achieve higher risk-adjusted returns. As a licensed fiduciary, we specialize in guiding clients through personalized wealth management strategies, ensuring your investments align with your long-term goals. Let’s work together to discover your Risk Number and build a strategy that sets you up for success over the next 3-5 years and beyond. Contact us today to get started.