How to Maximize Your Employer Contributions With Safe Harbor 401(k) in 2022
Author: Siân Killingsworth / 2 Jun 2022 / 401(k) Plan Information, Safe Harbor

Safe Harbor 401(k)s are a popular choice for small business owners who are looking to reward employees with higher retirement contributions, while also maximizing their own retirement funds. With mandatory employer contributions, Safe Harbor 401(k) plans exempt employers from the hassle of annual IRS auditing and most nondiscrimination testing. Below are our tips on how to get the most out of Safe Harbor retirement plans in 2022.
2022 Safe Harbor 401(k) Quick Facts
- Employees can contribute up to $20,500 of their annual salary, which reduces their taxable income.
- The maximum combined employer/employee contribution limit for 2022 is up to $61,000.
- Employees age 50 and older can put in an extra $6,500 in catch-up contributions on top of the maximum limits.
- Taxes are due when employees take the money out at retirement as early as 55 years of age.
- Employers must contribute at least 3% of each employee’s salary or match up to 4% of contributions.
- All employer contributions are immediately 100% vested.
- Annual IRS testing is considered satisfied.
- Employers can claim a $500 additional tax credit for plan startup costs for the first three years of a new 401(k) if the plan has automatic enrollment.
How to Save the Most for Your Retirement As a Small Business Owner
There are several reasons Safe Harbor plans are excellent small business retirement plans, allowing company owners to save more for retirement:
- No annual nondiscrimination testing: Administrative costs include statement mailing, completing IRS Form 5500, approving loans and distributions, and plan participant support. These costs can range from $750 to $3,000 a year, but tend to be on the higher side if annual nondiscrimination testing is required, too. Unlike most 401(k) administrators, Ubiquity does not charge AUM or per-person fees.
- No corrective refunds: In a traditional 401(k), the average amount business owners and highly compensated employees contribute to the plan generally cannot exceed 2% higher than the average amount regular employees contribute.
If the 401(k) plan has low enrollment or modest participation, those with the means to fund their retirement would be unable to do so. By agreeing to contribute at least 3% to all staff members, you maximize the freedom to fund your retirement to the limit and generously reward key employees as well.
- Lower tax burden: Contributions made to your own plan lower your personal taxable income for the year. Contributions made to your employees lower your taxable business income for the year.
- Higher profitability: According to T. Rowe Price, companies with great 401(k) plans have 20-80% higher profits than companies with poor 401(k)s. The research suggests that well-compensated employees are more satisfied and productive. Lower turnover means lower training costs, which allows you to save more money for retirement and reinvest more into the business.
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What Safe Harbor 401(k) Formulas Are Available?
With a 3% nonelective contribution, employers simply fund each employee’s plan to the tune of 3% of the employee’s annual salary up to the maximum employer/employee limit, regardless of what the employee contributes.
Other options for a Safe Harbor 401(k) employer matching formula include:
- Basic: A 100% match on the first 3% of employee contributions and 50% match on the next 3-5%.
- Enhanced: A 100% match on the first 4-6% of employee contributions.
As a small business employer, any of these match formulas will satisfy the Safe Harbor requirements and allow you to contribute up to $61,000 to your own retirement fund, acting as both “employee” and “employer.”
Considering the Transition to a Safe Harbor 401(k)?
Whether you’re starting a brand-new Safe Harbor or converting an existing small business 401(k) by adding an amendment, Ubiquity can help. Our small business focus and flexible plans allow us to serve our clients at a lower cost without AUM or per-enrollee fees, which means your plan can grow without penalty. Contact us for details.