The document outlines strategies for minimizing tax obligations through 401(k) plans, detailing contribution limits and tax benefits for both traditional and Roth contributions. It discusses various profit-sharing plans, including pro-rata, integrated, age-weighted, and cross-tested approaches, emphasizing potential tax savings and employer contributions. The overall conclusion highlights the value of 401(k) plans as effective tax planning tools, allowing business owners to enhance their accounts while benefiting employees.

1. Minimizing Your Tax Obligations

2. 401(k)
tax benefits

3. Contribution Limits
Under 50 years of age
$18,000
Over 50 years of age
$18,000
Plus Catch up contribution up to $6,000
Salary deferral plus employer contribution is
limited to $53,000

4. Traditional Pre-Tax Contributions
Contributions withheld from pay before tax
Gains are tax deferred while in the plan
Distributions taxed as ordinary income
Up to $4,500 annual tax savings prior to age
50 and $6,000 for 50 or older*
*Based upon a 25% tax rate

5. $20 Pre-tax Contribution
Costs $15 in take home pay

6. Roth Contributions
Contributions withheld from pay after tax
Gains are tax deferred while in the plan
Distributions are tax free after 59 ½ and 5
years after initial Roth Contribution
Roth in 401k avoids IRA income limitations

7. Pre-tax vs Roth

8. The Savers Credit
Must have been born before 1/2/93
 Cannot be full time student or claimed as a
dependent by someone else
Income Limits
 Single - $27,750
 Head of Household - $41,625
 Joint Filers - $55,500
Up to $1,000 credit, $2,000 if filing jointly

9. Contributions may be limited
FOR
An active employee who owns at least 5% of the
company during the plan year or preceding 12 months
An active employee who receives compensation in
excess of $120,000 (2015) in the 12 months prior to the
plan year

10. Contributions may be limited
Participant Compensation 401(k)
Owner 105,403.76 5923.69
Owner 195,678.95 10997.16
Owner 204,661.76 11501.99
EE 57,624.95 6,314.85
EE 56,455.46 5,145.51
EE 45,734.25 600
EE 78,999.92 6,000.00
EE 70,464.43 3,182.41
EE 36,491.60 1,889.44
EE 42,950.40 1,897.48
EE 44,500.08 1,110.00
EE 16,374.28 0
EE 46,237.80 2,380.21
Total 1,001,577.64 56,942.74

11. Increasing Contributions
 Education works – long term commitment required
 Matching contributions have a direct impact
 Automatic Enrollment

12. Safe Harbor Plans

13. Safe Harbor Plans
 Avoid ADP/ACP testing requirement
 HCEs may contribute full 401k dollar amount ($18,000 in
2015)
 May satisfy top heavy minimum requirements

14. Safe Harbor Plans
Required employer contributions
Matching contribution - $1 for $1 on the first 3% of pay
and $0.50 for $1 on the next 2% of pay
OR
3% contribution to all employees who have met the
plan’s eligibility requirement

15. Safe Harbor Plans
Additional requirement
Safe Harbor contributions must be 100% vested
Employees must receive a Safe Harbor notice 30 days
before the beginning of the plan year
Plan document must reflect Safe Harbor election

16. Safe Harbor Plans
Participant Compensation 401(k) 3% Safe Harbor
Owner 105,403.76 18000.00 3,162.11
Owner 195,678.95 18000.00 5,870.37
Owner 204,661.76 18000.00 6,139.85
EE 57,624.95 6,314.85 1,728.75
EE 56,455.46 5,145.51 1,693.66
EE 45,734.25 600 1,372.03
EE 78,999.92 6,000.00 2,370.00
EE 70,464.43 3,182.41 2,113.93
EE 36,491.60 1,889.44 1,094.75
EE 42,950.40 1,897.48 1,288.51
EE 44,500.08 1,110.00 1,335.00
EE 16,374.28 0 491.23
EE 46,237.80 2,380.21 1,387.13
Total 1,001,577.64 82,519.90 30,047.32

17. Safe Harbor Plans
 Increase Owner Contribution from $28,422.84 to
$69,172.33
 $14,637.53 in employer contributions to non-owners
 Tax reduction of $14,899.11*
*Source 2009 SBA study of average S-corp tax rates

18. Profit Sharing

19. Profit Sharing Plans
 Pro-rata
 Integrated
 Age Weighted
 New Comparability/Cross Tested

20. Pro-rata Profit Sharing Plans
Participant Compensation 401(k) 6% Pro-rata
Owner 105,403.76 5923.69 6,324.23
Owner 195,678.95 10997.16 11,740.74
Owner 204,661.76 11501.99 12,279.71
EE 57,624.95 6,314.85 3,457.50
EE 56,455.46 5,145.51 3,387.33
EE 45,734.25 600 2,744.06
EE 78,999.92 6,000.00 4,740.00
EE 70,464.43 3,182.41 4,227.87
EE 36,491.60 1,889.44 2,189.50
EE 42,950.40 1,897.48 2,577.02
EE 44,500.08 1,110.00 2,670.00
EE 16,374.28 0 982.46
EE 46,237.80 2,380.21 2,774.27
Total 1,001,577.64 56,942.74 60,094.66

21. Integrated Profit Sharing Plans
Participant Compensation 401(k) 5% Profit Sharing
Owner 105,403.76 5923.69 5,270.19
Owner 195,678.95 10997.16 14,456.75
Owner 204,661.76 11501.99 15,417.91
EE 57,624.95 6,314.85 2,881.25
EE 56,455.46 5,145.51 2,822.77
EE 45,734.25 600 2,286.71
EE 78,999.92 6,000.00 3,950.00
EE 70,464.43 3,182.41 3,523.22
EE 36,491.60 1,889.44 1,824.58
EE 42,950.40 1,897.48 2,147.52
EE 44,500.08 1,110.00 2,225.00
EE 16,374.28 0 818.71
EE 46,237.80 2,380.21 2,311.89
Total 1,001,577.64 56,942.74 59,936.51

22. Age Weighted Profit Sharing Plans
Participant Compensation 401(k) Age Weighted
Owner 105,403.76 5923.69 13,664.29
Owner 195,678.95 10997.16 3,041.59
Owner 204,661.76 11501.99 28,787.05
EE 57,624.95 6,314.85 701.26
EE 56,455.46 5,145.51 4,134.55
EE 45,734.25 600 435.73
EE 78,999.92 6,000.00 3,012.39
EE 70,464.43 3,182.41 4,040.21
EE 36,491.60 1,889.44 231.22
EE 42,950.40 1,897.48 377.15
EE 44,500.08 1,110.00 360.15
EE 16,374.28 0 938.85
EE 46,237.80 2,380.21 406.02
Total 1,001,577.64 56,942.74 60,130.46

23. Cross Tested Profit Sharing Plans
Participant Compensation 401(k) Cross Tested
Owner 105,403.76 5923.69 5,691.80
Owner 195,678.95 10997.16 10,566.66
Owner 204,661.76 11501.99 11,051.74
EE 57,624.95 6,314.85 3,883.92
EE 56,455.46 5,145.51 3,805.10
EE 45,734.25 600 3,082.49
EE 78,999.92 6,000.00 5,324.59
EE 70,464.43 3,182.41 4,749.30
EE 36,491.60 1,889.44 2,459.53
EE 42,950.40 1,897.48 2,894.86
EE 44,500.08 1,110.00 2,999.31
EE 16,374.28 0 1,103.63
EE 46,237.80 2,380.21 3,116.43
Total 1,001,577.64 56,942.74 60,729.36

24. Profit Sharing Plans Compared
401(k) OwnerPortion EmployeePortion
Pro-rata 28,422.84 30,344.68 29,749.98
Integrated 28,422.84 35,144.85 24,797.89
Age-Weighted 28,422.84 45,492.93 14,637.53
Cross-Tested 28,422.84 27,310.20 33,419.16

25. Combining Strategies
Participant Compensation 401(k) 3% Safe Harbor Age Weighted
Owner 105,403.76 18,000.00 3,162.11 13,664.28
Owner 195,678.95 18,000.00 5,870.37 3,041.59
Owner 204,661.76 18,000.00 6,139.85 28,787.05
EE 57,624.95 6,314.85 1,728.75 701.26
EE 56,455.46 5,145.51 1,693.66 4,134.55
EE 45,734.25 600 1,372.03 435.73
EE 78,999.92 6,000.00 2,370.00 3,012.39
EE 70,464.43 3,182.41 2,113.93 4,040.21
EE 36,491.60 1,889.44 1,094.75 231.22
EE 42,950.40 1,897.48 1,288.51 377.15
EE 44,500.08 1,110.00 1,335.00 360.15
EE 16,374.28 0 491.23 938.85
EE 46,237.80 2,380.21 1,387.13 406.02
Total 1,001,577.64 56,942.74 30,047.32 60,130.45

26. Combining Strategies
 Increase Owner Contribution from $28,422.84 to
$114,665.26
 $29,512.52 in employer contributions to non-owners
 Tax reduction of $31,138.08*
*Source 2009 SBA study of average S-corp tax rates

27. The Bottom Line
 A 401(k) Plan is a valuable tax planning tool
 Tax benefits exist for all participants
 Business owners can make significant enhancement to
their own accounts while benefiting employees and
reducing their tax liability
 Careful analysis and a customized solution are needed
since the dynamics of each business are different

28. Minimizing Your Tax Obligations