2021 401(k) Safe Harbor contribution limits include a max individual limit of $19,500 and $6,500 in catch-up contributions.
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The 401(k) Safe Harbor contribution limits for 2021 remain generally the same as the 2020 401(k) Safe Harbor limits, with the maximum individual contribution still at $19,500. This is the same individual contribution limit as a traditional 401(k).
The 2021 catch-up contribution limit for Safe Harbor 401(k) plans also remains unchanged from 2020, with retirement savers over 50 years old able to save an additional $6,500 as a catch-up contribution. This limit extends to all types of 401(k) plans.
Read below to learn about some contribution limit increases for 2021 and how they may affect how much you are able to save this year.
If you are concerned about maximizing your personal savings as a small business owner, or about passing nondiscrimination tests, it’s not too late to start a new safe harbor 401(k) plan or add the safe harbor amendment to an existing plan for 2021. Contact Ubiquity, a leading provider of small business Safe Harbor 401(k) plans, for details.
Employers with safe harbor plans must make contributions to their employees’ plans in order to bypass the standard IRS nondiscrimination testing. They may make a 4 percent matching contribution, a 3.5 percent matching contribution, or a 3 percent non-elective contribution. All contributions are subject to 100% vesting.
The total combined employer/employee contribution limit increased by $1,000 in 2021 to $58,000 — or $64,500 if you’re over 50 and making the catch-up contributions.
The annual compensation limit is used in determining a participant’s allocation of employer contributions, which may not exceed $290,000 in 2021. This limit has increased from $285,000 in 2020.
For example, a company plan matching 5% of an employee’s earnings would not have to match 5% on an employee earning $1 million. Instead, the employer would be responsible for paying that employee 5% of the $290,000 maximum cap.
If you haven’t set up a 401(k) Safe Harbor plan yet, you may be considering one if you’ve failed nondiscrimination testing in the past or if you have a lot of highly compensated employees who want to maximize their retirement savings without reprisal.
For 2021 – the same as 2020 — a “Highly Compensated Employee” is defined as someone making more than $130,000 a year or owning more than 5% of the business in the previous year. If the average employee puts 4% of their income into the retirement plan, a highly compensated employee cannot put more than 6% of their income in. Key employees must own less than 60% of the total assets in the plan, so the plan is not considered “top-heavy.”
To pass the IRS fairness testing easily, business owners may adopt a safe harbor plan and agree to make contributions on behalf of all employees. The deadline to adopt a new Safe Harbor 401(k) plan in 2021 is October 1, 2021. The deadline to adopt the amendment necessary to convert a traditional 401(k) plan into a 3% nonelective safe harbor plan for 2021 is December 2, 2021.
Call Ubiquity to set up a Safe Harbor 401(k) plan today. We offer one of the industry’s most affordable plans at a low, flat, monthly rate with no AUM or per-person fees.
If you are a small business owner and need a retirement plan for yourself and your company, only Ubiquity offers flat-fee plans, plus expert guidance along the way.
We will fully customize your plan to meet the specific needs of your small business.
Setting up a 401(k) can be complicated. Only Ubiquity gives small business owners access to retirement experts in addition to industry-leading low flat-fees. Each sales expert has over a decade of experience assisting business owners in 401(k) plan design. Take advantage of this free benefit.