People like to read, and so do I. They also like to read articles and find out information, especially if it can save them money. So they read about the opportunity where through a 401(k) plan, they could put away over $40,000 in an after-tax voluntary contribution. Of course, the plan has to offer that old thrift provision, but these articles fail to mention that voluntary contributions are all subject to the ACP test, like a matching contribution. Even worse, a safe harbor 401(k) doesn’t stop the ACP test.
So unless it’s an owner-only plan or the person wanting it is a Non-Highly Compensated Employee, the chances that it can work are slim to none—ever slimmer than that. So, for the financial journalists, please don’t give false hope to business owners with employees that they can save more when an ACP test is a huge impediment.
