![]() ![]() ![]() It’s never too early or too late to consider a Safe Harbor small business 401(k). Safe Harbor provisions are ideal for small businesses who want to maximize their retirement contributions and tax savings, while also offering 401(k) benefits to their employees. This is an expensive and time-consuming bureaucratic headache. Yet, if a small business only has a handful of employees, the business owner’s own contributions can cause the benefits to appear lopsided and cause the company to fail the annual test. The IRS wants to make sure retirement plans are not created for the sole benefit of Highly Compensated Employees. Nondiscrimination testing was designed with big businesses in mind. Enhanced Matching: At minimum, the employer contributes 100% of each employee’s 401(k) contributions, up to 4% of their compensation.Īlternative matching formulas may be available, depending on the specifics of your plan.Basic Matching: The employer matches 100% of each employee’s 401(k) contributions, up to 3% of their yearly compensation, plus a 50% match of the next 2% of their contributions.Safe Harbor plans use two types of matching formulas: Matching contributions made by an employer match a certain percentage of the employee’s contribution. Types of Safe Harbor Matching Contributions Two of the three types of Safe Harbor contributions involve matched funds, hence the term Safe Harbor match. Those contributions are vested immediately. A Safe Harbor 401(k) plan allows employers to avoid most annual compliance tests, but in exchange for this benefit, they must make annual contributions on behalf of employees. ![]()
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