401(k) Safe Harbor Contribution Limits for 2020

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How much can you contribute to a Safe Harbor 401(k) plan in 2020?

Safe Harbor 401(k) Plans are subject to the same contribution limits as any other 401(k) plan.

  • Do you want to max out your contributions for the year?

    Safe Harbor 401(k) plans, like all 401(k) plans, allow individuals in 2020 to save up to $19,500.

  • Are you over 50 years of age?

    Workers who will be 50 or older before the end of the year are able to save an extra $6,500 each year as a catch-up contribution for a maximum limit of $26,000.

  • Does your employer match?

    Contributions from your employer, via Safe Harbor match, do not count toward your contribution limit. The total combined employer and employee contribution limit is $57,000.

How is a safe harbor 401(k) different than other types of plans?

Safe Harbors may have the same 401(k) contribution limits as other 401(k)s, but they differ in terms of:

  • Compliance Testing

    No ADP/ACP compliance tests are required for a Safe Harbor 401(k) plan.

  • Employer Matching

    100% vested employer contributions must be made to all eligible employees.

Employers can choose from a basic, enhanced, or non-elective matching algorithm:

  • Basic Matching Formula

    The employer matches 100% of employee contributions, up to 3% of their compensation, plus a 50% match on the next 2% of their compensation.

  • Enhanced Matching Formula

    The employer matches 100% of employee contributions, up to 4% of their compensation, not to exceed 6%.

  • Non-elective Contribution

    The company contributes at least 3% of employee compensation, regardless of what employees contribute.

Learn more about Safe Harbor matching

Other than that, a Safe Harbor 401(k) is essentially subject to the same rules and limits as any other 401(k).

Should you make your 401(k) plan a safe harbor?

The needs of every business are different, but safe harbor plans typically work well for small businesses. 

You’re already well aware that offering a 401(k) plan is a generous employment benefit that makes it easier for your employees to save for retirement. The government wants to see that businesses treat all employees fairly in preparation for retirement, which is why a standard 401(k) has mandatory nondiscrimination testing.

The IRS doesn’t want business owners to simply set up accounts for themselves and a handful of highly compensated executives to dodge tax liability, for example. If your plan were to fail these tests, you could expect costly fees, 401(k) contribution refunds to employees, and a lot of extra administrative hassle.

If compliance has been troublesome in the past or if you’re just looking for a new plan without all the headaches, the Safe Harbor option is a sensible choice. You may have to pay a vested match to guarantee fairness, but you enjoy the same high limits of a traditional 401(k).

New plans should be established no later than October 1, so be sure to contact a plan provider before September 1. If you want to add a Safe Harbor provision to an existing 401(k), your administrator can make an amendment that goes into effect on January 1, 2021. Given the 30-day notice requirement and lead time for administration, you should try to get this taken care of by the end of November to prepare for the following year.

Contact Ubiquity to tackle the administrative side of a Safe Harbor 401(k) plan with ease and expert efficiency.

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© 2023 Ubiquity Retirement + Savings
Privacy Policy
44 Montgomery Street, Suite 300
San Francisco, CA 94104