Lesson 1.4: The Plan Design Comparison Grid (Exercise)

Module: Tax Optimization (Lever 1)
Course: The Four Levers of Business Growth
Est. read time: 4 minutes

The Exercise

Everything in this module — the plan design spectrum, the business-paid costs argument, the non-tax reasons to maximize — comes together in one deliverable: the Plan Design Comparison Grid.

This is the most powerful tool in the Tax Optimization lever. It takes the abstract ("you could be saving more") and makes it specific ("here's exactly how much, under each design, with your numbers").

How to Build the Grid

Across the top: Every qualified plan design that's relevant for the business. Typically:
- SEP IRA (if applicable)
- SIMPLE IRA
- Safe Harbor 401(k)
- Safe Harbor 401(k) + Profit Sharing
- New Comparability 401(k)
- Cash Balance + 401(k) combination

Not every design applies to every business. A solo owner with no employees has different options than a 50-employee company. But showing 4-6 options side by side is the goal.

Down the side: The numbers that matter:

A Sample Grid (Illustrative)

Owner: age 52, $250K income, 30 employees, 37% marginal tax rate

All numbers are directional and illustrative. Actual amounts depend on plan year, IRS limits, employee demographics, age, and actuarial calculations. This is not tax or financial advice.

Basis for the owner row: it is the owner’s own deferral and catch-up plus whatever the design also contributes on the owner’s behalf, since the owner is an eligible participant too. Under the SIMPLE that is the 3% match; under the safe harbor it is the 3% non-elective. Read across the row only if you keep that basis the same in every column — mixing a deferral-only figure with a total-contribution figure is the easiest way to make this grid say something untrue.

The Employee-Cost Decision

Inside the safe harbor column there are two different ways to satisfy the requirement, and they cost different amounts:

• The 3% non-elective goes to every eligible employee, whether or not they put in a dollar of their own. Predictable, easy to budget, and the cleanest base to add profit sharing to.
• The basic match — 100% of the first 3% an employee defers, plus 50% of the next 2%, so up to 4% of pay — is only paid to people who actually participate.

Which one costs less depends heavily on participation. Below roughly three-quarters participation the match is cheaper, because the business only funds employees who defer. As participation rises, the match can become more expensive than the flat 3%, because it is paying up to 4% to nearly everyone. Strong auto-enrollment makes that comparison especially worth running.

This is a TPA calculation on the real census, not a rule of thumb to act on. Knowing the crossover exists lets a CPA ask for the comparison instead of accepting whichever design was presented first.

A note on the employee-cost row: it is shown separately and deliberately not netted against the owner's tax savings. Those dollars are deductible compensation invested in the team — not a fee — and how much of that cost is truly incremental varies by business. When you run real numbers, bring the employee cost into the comparison alongside the retention and recruiting value it buys.

When an owner sees $8.5K in net benefit from their current setup versus $77.5K from a different design — that gap changes the conversation instantly. It's no longer theoretical. It's specific dollars they're leaving on the table every year.

When You Can Still Act

A better design is only useful if there is still time to put it in place. A few retirement plan deadlines can change the options available to a client late in the year.

October 1 is the last day to start a new safe harbor plan for the current calendar year. The first plan year has to run at least three months, and that is where the date comes from. A business that was only just established is not held to the three-month minimum — worth knowing if the client is a brand-new entity.

Providers often quote an earlier date than that. Those cutoffs are real, but they are the provider's own paperwork runway, not the rule. It is a fair question to ask directly: is that your processing cutoff, or the deadline under the rules?

December 1 is the deadline worth remembering. A plan can be amended to add a 3% non-elective safe harbor as late as thirty days before the plan year ends — for the year that is already most of the way over. A client who is looking at a failed test in November is not out of options.

If December 1 has already passed, there may still be another option: the same amendment can be made as late as the last day of the following plan year. The tradeoff is that the required contribution increases from 3% to 4%. Whether that is preferable to correcting a failed test is a calculation for the TPA.

Adding a safe harbor match is stricter: that one has to be in place before the plan year begins, with notice to employees thirty to ninety days ahead of the start. A 3% non-elective safe harbor generally no longer requires that annual notice, as long as no safe harbor match is in play — though other notices, including the one that goes with automatic enrollment, can still apply.

Adopting a Plan Late Does Not Make Deferrals Retroactive

The SECURE Act lets an employer adopt a plan after the year has ended, right up to its tax filing deadline including extensions, and treat it as though it had been in place on the last day of that year.

What gets lost is the second half: adopting late does not generally make employee salary deferrals retroactive. A deferral has to be elected before the pay is available, so an owner cannot go back and defer compensation already in their pocket. A plan adopted in March for last year can take the employer contribution for last year, and usually nothing else.

There is one narrow exception, and it is worth knowing because it applies to the smallest clients: a sole proprietor or other unincorporated owner-only business setting up its first plan can make its own deferral for that first year, up to the owner’s return due date without extensions. Any business with employees is outside it.

Owners hear "you can still set one up for last year" and picture their own $24,500 going in. For most of them it cannot, and that is worth saying plainly before anyone builds a plan around it — and it is why a late-adoption conversation often shifts toward the employer-funded designs above.

How to Use This in Practice

If you're a business owner:
Run your own numbers. Start with the free calculator at 401grow.com, which covers the most common scenarios. To see which designs belong in your grid, the free Which Plan Fits? tool sorts eleven plan structures against your situation — which are in play, which are conditional, and which are ruled out and why. If the output shows a meaningful gap between your current plan and what's possible, that's worth a 20-minute conversation to explore.

If you're a CPA or financial professional:
Build this grid for two or three clients and bring it to your next meeting. You don't need to be a retirement plan specialist to walk through the numbers. You need the grid, the business's actual figures, and the willingness to say "I found something you should see." The Which Plan Fits? tool builds the design shortlist for you — and generates the questions to bring to the TPA.

Whether they act on it or not, you've brought them an idea they haven't heard anywhere else — and that changes the dynamic.

If you're building this for a presentation or talk:
Use a simplified version (3-4 columns, the key rows) on a single slide. Seeing current versus possible side by side makes the point faster than anything you could say.

Connection to Other Levers

The grid is the entry point. Once the conversation starts around tax optimization, it naturally expands:

• "Who pays the plan costs?" → Business-paid costs argument (Lesson 1.2)
• "What about my employees?" → Employee engagement, 21-Day Challenge, retention (Lever 2)
• "How do I build this into my operations?" → SOPs, role definitions, KPIs (Lever 3)
• "What does this mean for my business value?" → Transferable value, owner dependence (Lever 4)

The grid opens the door. The Four Lever System is what's on the other side.