Startup 401(k) Plan

[Guest Theresa Irvin]

Can a plan be started during the last month of the fiscal year in order for a husband and wife to put away the maximum deferral amount and also a safe harbor match?

[John Feldt ERPA CPC QPA]

Generally, a safe harbor plan year must be at least 3 months long, unless the business itself was just created and the plan was established as soon as possible after the business started.

If no NHCEs would be statutorily eligible by the end of the year, you don't have an issue with ADP.

If the husband/wife have higher pay, you may be able to benefit from the first year rule allowed for ADP testing which, using the prior year method, states that the NHCEs are considered to have a prior year deferral average of 3%, thus allowing your HCEs to average 5%. Thus, if one spouse makes a lot in wages, have them defer the most deferral (perhaps the maximum), then if any room is left, have the other defer so the average HCE deferral is 5% of pay. Also, there's a few other design items that could be looked at if the owners are over age 50.

[Guest Sieve]

Remember, too, that max. deferrals are based on calendar year, not plan year. So, there may be no hurry to put plan place in place at end of fiscal year if there's plenty of time remaining in calendar year--you can put plan in place as of the beginning of the fiscal year, and put in a double maximum during the first plan year (which means that a SH plan no doubt would be necessary).