401(k) and Profit Sharing Plans

Safe Harbor 401(k)

A safe harbor 401(k) plan is similar to a traditional 401(k), but, among other things, must provide for immediate vesting in required employer contributions. However, the safe harbor 401(k) plan may not be subject to some of the annual testing associated with a traditional 401(k) plan.

To set up a safe harbor 401(k) plan for your business, you may purchase a pre-approved plan or consult a benefit plan advisor.

Safe harbor 401(k) plan on IRS.gov

 

 
  • Can be set up by any employer other than a state or local government entity
  • Participant's retirement benefits based on participant’s account balance
  • Allows employees to contribute to their own retirement through salary deferrals, up to $17,500 and an additional $5,500 if age 50 or older1
  • Requires the employer to make either matching contributions or a 3% contribution to all participants
  • The maximum combined employer and employee contributions are the lesser of 100% of an employee’s compensation or $51,0001 or more if catch-up contributions
  • May exclude certain employees from coverage as long as annual coverage tests are met
  • More complex to set up and operate
  • Annual return could be required
  • Some annual nondiscrimination testing could be required
  • Greater design flexibility
  • Plan may allow employees to take loans and hardship withdrawals
  • Immediate vesting in full account balance
1Dollar limits are for 2013 and are subject to cost-of-living adjustments for future years.

Operating a safe harbor 401(k) plan on IRS.gov 

 

 

 

 

Correcting Plan Errors on IRS.gov

 

 

ADDITIONAL RESOURCES