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Safe Harbor 401(k) Plans

Benefits and Highlights

The Safe Harbor 401(k) plan is different than a conventional 401(k) plan in the areas of employer contributions, vesting and maximum individual allocations. 

• A safe harbor 401(k) plan states that the employer must make one of two non-discretionary contributions to the plan each year. The contributions are mandatory and the plan formula must be followed.
• It may be installed for businesses of any size. Companies with twenty five or more employees are most appropriate.
• Safe harbor 401(k) plans permit employee pre-tax salary deferrals of up to $13,000 or 95% of compensation , whichever is less. 
• Employers must provide a dollar for dollar match up to 3%of total compensation and 50% match on the next 2% of compensation. An employer may make a non-elective profit sharing contribution instead of matching contributions in the amount of 3% of compensation for each eligible employee. Additional non-elective contributions are permissible. Total contributions are limited to $40,000.00 or 10% of total compensation, whichever is less.
• Loans and Hardship withdrawals are permitted in safe harbor 401(k) plans.
• Plan participants are always 100% fully vested with respect to the plan formula in safe harbor 401(k) plans. A separate vesting schedule may apply to additional employer contributions over and above the stated plan formula.
• Withdrawals made by participants prior to age 59 1/2 are taxed as ordinary income and are subject to a 10% tax penalty in most cases.
• Government reporting (IRS form 5500) and 415 testing is required with safe harbor 401(k) plans.

If you are interested in learning more about Safe Harbor 401(K) plans or would like a side by side comparison of an existing plan please contact us.