You deserve a retirement plan that maximizes your contributions while championing your employees. That’s where a Safe Harbor 401k comes in. It benefits you, your key team members, and all participating employees.
Under a Safe Harbor Plan:
After that, you will miss your Safe Harbor opportunity (and the tax benefits that go with it) for this year.
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A Safe Harbor Plan is a kind of 401k retirement plan specifically designed to automatically pass IRS compliance tests. These IRS tests prove that the plan is fair and doesn’t discriminate against lower-earning employees. As a trade-off for passing these nondiscrimination tests (and the extra administrative duties that go with the testing process) business owners must make a minimum contribution to the plan each year—which must be immediately 100% vested.
As an employer, you have a little flexibility in how you’d like to make those required contributions:
The employer will match 100% of the employee’s contributions up to 3% of the employee’s salary, plus 50% of the employee’s contributions, between 3%–5% of salary. This results in a 4% matching contribution for an employee who contributes at least 5% of their pay into the plan.
The employer contributes 3% of salary for every employee who is eligible to participate in the plan—regardless if they personally contribute.
Want to learn more? What’s So Safe About Safe Harbor?
Although a Safe Harbor 401k plan can benefit business owners and their employees, it may not be the best fit for every plan.
Safe Harbor plans are a great fit for small businesses (particularly those with under 25 employees) and businesses that have failed noncompliance testing in the past. But while you save in administrative hassle, you may pay a bit extra in plan costs and required contributions. It’s important for business owners to weigh the cost of the mandatory contributions against the potential benefits.
Finding a retirement plan that fits the needs and challenges of your small business can be overwhelming. Luckily, our plan design experts at Ubiquity can walk you through the plan design options and the setup process to make sure your plan is designed to fit perfectly to your needs.