In recent years, safe harbor plans have become increasingly popular with small businesses because they’re easy to administer, low maintenance, and offer maximized savings for employees. This year, if you want the same benefits and are planning to adopt a safe harbor 401(k), there are some key things and dates to know about first before making a move. Below, we covered contribution limit changes for 2024, how they affect you, and major deadlines to keep in mind.

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2024 Employer 401(k) Safe Harbor Limits

The IRS is increasing the maximum individual 401(k) contribution limit to $23,000, up from the $22,500 limit in 2023. The safe harbor 401(k) contribution limit for 2024 is the same as a Traditional 401(k), even though safe harbor plans are exempt from most nondiscrimination testing. The 2024 catch-up contribution limit for Traditional and safe harbor plan participants who are age 50 or older is at $7,500, unchanged from 2023. The amount you contribute is pre-tax, meaning that it can also reduce your taxable income, tax bracket, and the percentage of taxes you owe for 2024.

The $23,000 limit applies to individual 401(k) contributions. Employers offering safe harbor 401(k)s are required to make contributions to all eligible employees’ plans. Safe harbor match can range from 3.5% to 6% if you utilize the QACA (Qualified Automatic Enrollment Contribution Arrangement), and 4% – 6% for all other 401(k) plan types including those with EACA (Eligible Automatic Enrollment Contribution Arrangement). A 401(k) plan types can utilize the 3% safe harbor non-elective contribution. If you have QACA, you can elect to vest at two years, whereas without it, the safe harbor would be vested at 100%.

  • For 2024, employers can add up to $40,500 onto the $23,000 individual limit.
  • The total combined contribution limit is up to $69,000 for people under 50 or $76,500 for people over 50.

2024 Income Threshold for Determining Employer Contributions

$345,000 in 2024 – this is up from the $330,000 2023 401(k) safe harbor contribution limit. For example, a company plan matching 4% of an employee’s salary would not match 4% on employees earning $1 million. Instead, the employer would pay the employee 4% of the $345,000 maximum cap.

2024 Definition of Highly Compensated Employees

If you’re concerned about failing nondiscrimination tests or have a lot of “highly compensated” or “key” employees, setting up a safe harbor plan can be beneficial for you as it will automatically pass most annual compliance tests. If the definitions below apply to you, it’s time to consider one.

  • Highly Compensated Employees: In 2024, a highly compensated employee is someone who earned more than $150,000 or who owned more than 5% of the business in 2022 (family attribution rules apply). If the average employee puts 4% of their income into the retirement savings plan, a highly compensated employee generally cannot contribute more than 6% of their income.
  • Key Employees: Officers earning salaries of more than $215,000, more than 5% owners (family attribution rules apply), or more than 1% owner earning more than $150,000 in 2023.

IMPORTANT NOTE: While employers essentially do get a “free pass” with safe harbor plans regarding most nondiscrimination testing, they need to make at least a 3% contribution to their employees’ accounts.

2024 Safe Harbor Deadline

There are various deadlines and key dates regarding safe harbor adoption, so it’s important not to miss one! Below are the dates for you to remember for the rest of the year.

  • If you plan to have a safe harbor become effective in October, you must notify your employees no later than September 1, 2024.
  • The deadline to start a new safe harbor 401(k) plan is October 1, 2024. For Ubiquity specifically, the deadline is September 16, 2024.  
  • If you want to change your safe harbor type (i.e., safe harbor non elective to safe harbor match) for 2025, you will need to do so by December 1, 2024. Additionally, you’ll need to notify Ubiquity of these changes by November 15, 2024.
  • If you plan on converting an existing 401(k) to a safe harbor, you will need to give your employees notice by December 1, 2024.
  • The deadline to convert a traditional 401(k) plan to a 3% nonelective or match-based safe harbor plan is December 2, 2024.
  • The deadline to adopt a 4% nonelective safe harbor provision for the 2024 plan year is December 31, 2025.

Ubiquity is here to streamline the safe harbor 401(k), and help you set up a plan, or add a safe harbor provision to your existing plan. We take care of small businesses with the industry’s most transparent and affordable 401(k) plans.