What is a Safe Harbor 401(k)?
Safe Harbor is a way of structuring a 401(k) plan that allows small business owners to maximize their contributions while sailing safely through annual compliance tests given by the IRS.
These IRS tests prove that the plan is fair for all eligible employees and doesn’t unfairly 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.
With a Safe Harbor provision in your 401(k) You Get:
A retirement plan that maximizes your contributions while championing your employees. A Safe Harbor 401(k) benefits you, your key team members, and all participating employees.
* Maximize your retirement plan contributions
* Incentivize your team to save for their future
* Sail through required IRS compliance testing
* Receive up to $16,500 in tax credits over three years when you open a 401(k).
How does a Safe Harbor plan work?
A Safe Harbor 401(k) plan is deemed to pass the two nondiscrimination tests that 401(k) plans must typically pass to prove that the plan is not providing a more significant benefit to HCEs which guarantee those who earn at least $150,000 per year or who own more than 5% of the company.
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