Snap401k

Is a Safe Harbor 401k Plan Right For You?

A safe harbor 401k plan is similar to a traditional 401k plan, but, among other things, must provide for employer contributions that are fully vested when made. However, the safe harbor 401k is not subject to many of the complex tax rules that are associated with a traditional 401k plan, including annual nondiscrimination testing.

Under a safe harbor plan, you can match each eligible employee’s contribution, dollar-for-dollar, up to 3 percent of the employee’s compensation, and 50 cents on the dollar for the employee’s contribution that exceeds 3 percent, but not 5 percent, of the employee’s compensation. Alternatively, you can make a non-elective contribution equal to 3 percent of compensation to each eligible employee’s account. Each year you must make either the matching contributions or the non-elective contributions.

Both the traditional and safe harbor plans are for employers of any size and can be combined with other retirement plans.