#Safe harbor plus

Matching contributions to encourage and reward elective deferrals by employeesĪnd to maximize employee appreciation of the plan. The employer has the option of depositing matching or Provides the opportunity for retirement savings by the employees themselves

The employer can contribute 3% of compensation to all employees that are eligible.Įmployees’ 401k is the most notable Safe Harbor requirement, but there areĪdditional rules surrounding when and how you offer your plan.

The employer can match 100% of the first 4% of employee contributions.

#Safe harbor plus

Under a safe harbor plan, employers can select between two contribution options: The employer can match 100% of the employees first 3% contribution, plus 50% of the subsequent 2%.A safe harbor plan allows you to automatically pass these non-discrimination testing rules by making certain contributions to participating employees. The government has set forth certain compliance tests to make sure that all employees are fairly represented in the plan. As a general rule, the government wants to make sure that 401k plans don’t just favor highly compensated employees (HCEs) over non-highly compensated employees (NHCEs). So why would someone select a safe harbor 401k plan over a traditional 401k? It comes down to the testing requirements. Vested and must be funded on a per-pay-period basis. Plan will generally satisfy non-discrimination rules for both electiveĭeferrals as well as employer matching contributions. Make sure that you talk to yourĪdministrator if you are contemplating a plan amendment. Once the plan is set up, it should not be that challenging to stay inĪre not permissible during the year. Notification must be received within 30 to 90 days of the start of employment. Require a written notification to employees along with a little education. Safe harbor provision can be added to any type of 401k plan. But it will Usually a small price to pay to ensure you’re your plan passes IRS testing. Plans can be designed to restrict matching contributions to only employees who participate in the plan or they can make contributions for everyone, including those employees who are eligible but do not participate. However, for safe harbor plans, contributions are required to be fully vested when made. Traditional 401k plans can have a long vesting period for employer It will require the employer to make contributions for certain employees.

The non-discrimination test or avoids it altogether. Safe harbor 401k is a specific plan structure that automatically passes Avoid the cost and compliance restrictions association with IRS non-discrimination testing.This is because owners are considered employees as well. Receive additional retirement savings from the company’s matching contributions.If you are over the age of 50 then you are allowed a $25,000 catch up contribution Contribute the maximum annual employee deferral of $19,000 to their own account.Safe harbor plans allow business owners to: Plans can also increase employee retention and provide an incentive for

Tax deduction for all matching contributions made to employees. But with a Safe Harbor 401k,Īs long as you make the minimum contribution for your employees, you can maximize Personally contribute to a basic (or traditional) plan. There’s a formula that limits the amount the owner can Like a traditional 401k, it offers flexible and fully tax-deductible employerĬontributions together with tax-sheltered growth of plan assets.Įmployers must satisfy certain contribution, notice deadlines and vesting rules.įor example, let’s assume you have 10 employees, but only 4 decide toĬontribute to the plan. Type of retirement plan that is flexible, cost effective and extremely popular.

Safe Harbor 401k Third Party Administrator (TPA).