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Conversely , with a safe harbor

plan , this compliance test is

waived , enabling owners and

HCEs to maximize their 401K

contributions . Contributions

made to the plan on a pre-tax

basis reduce taxable income ,

providing another tax benefit

to participating principals and

employees .

Employees ( HCEs ), or employees earning $ 155,000 + in 2024 , is that they can maximize their annual plan contributions .

In a non-safe harbor plan , if 60 % or more of the assets in the 401 ( K ) plan originate from owners or Highly Compensated Employees , it can restrict the amount these individuals can contribute .

Conversely , with a safe harbor plan , this compliance test is waived , enabling owners and HCEs to maximize their 401K contributions

. Contributions made to the plan on a pre-tax basis reduce taxable income , providing another tax benefit to participating principals and employees .

You can contribute up to $ 23,000 to your 401 ( K ) plan in 2024 . If you are 50 years of age or older , you can also make an additional catch-up contribution of $ 7,500 , for a total of $ 30,500 in 2024 . As most dealer principals have the majority of their wealth concentrated in their business and business real estate , the 401 ( K ) can be a great tool to diversify and grow your wealth outside the business .

Tax Deductions Up to this point , we ’ ve explored the tax benefits that a 401 ( K ) plan can offer both you and your employees . Now , let ’ s examine it from a corporate perspective . If you opt to provide matching contributions ( like the safe harbor employer match we discussed earlier ), these contributions can qualify as tax deductible business expenses . They can increase your Profit & Loss operating expenses and reduce your bottom line , or Taxable Net Income .

We frequently engage in discussions with powersports dealer principals to weigh the pros and cons . Would you rather incentivize your employees with an employer match ? Or end the year with a higher net profit that will increase your taxes due at year-end ? While the answer is not the same for all , many dealers choose to reward their employees instead of the IRS .

Discretionary Profit Share The final tax-advantaged suggestion we ’ d like to present is the inclusion of a discretionary profit-sharing provision in your 401 ( K )

These [ discretionary profit share ]

contributions allow employers

to designate a portion

of the company profits to

be distributed to all

employees , including

principals , on a pre-tax basis .

plan . Before we delve further , it ’ s important to highlight the term discretionary , indicating that while you can incorporate this provision into your plan , there ’ s no obligation to use it every year .

So , what exactly is the discretionary profit share ?

Discretionary profit-sharing contributions offer employers the flexibility to allocate additional funds , particularly in years of high business profitability . These contributions allow employers to designate a portion of the company profits to be distributed to all employees , including principals , on a pre-tax basis . Profit sharing contributions are a taxdeductible business operating expense and can help manage your Net Income amount throughout the year .

Among the three common profit-sharing allocation formulas are pro rata , permitted disparity , and new comparability . We most frequently see ‘ new comparability ’ used in this industry as it allows the company to segment employees into different groups to determine their share of profit . One of the simplest groupings is owner vs . non-owner . For example , your powersports dealership can take $ 100,000 of profit and allocate a percentage to owners , say 80 %, and 20 % to non-owners . Such grouping allows principals to keep most of the profits on a pre-tax basis but provides additional profit reward to employees .

The total permitted annual contribution limit for 2024 is $ 69,000 , plus an additional $ 7,500 for individuals 50 or older , for a total of $ 76,500 .

Lastly , if you are worried about putting too much money into your 401 ( K ) plan , please know that 401 ( K ) s ( as well as other ERISAqualified

retirement plans ) are usually fully protected from creditors , giving you another layer of wealth protection .

CONCLUSION As highlighted earlier in our article , powersports dealers are encouraged to review and revisit their 401 ( K ) -plan adoption agreement to ensure the plan benefits your employees , you as the principal , and your company .

Our team offers a complimentary service , the Second Opinion Service , a 360−degree review of your dealership and personal financial situation , which includes a review of your company 401 ( K ) plan .

Brad Stanek , CFP is an executive director and financial advisor with of The Stanek-Haack Group at Morgan Stanley in Chicago . His email is brad . stanek @ ms . com . Paulina Matel , CFP is a financial advisor with The Stanek-Haack Group . Her email is Paulina . matel @ ms . com .