Safe Harbor 401k Plan
The Safe Harbor 401k Plan allows eligible employees to contribute a portion of their own salary to a retirement plan. Salary deferrals can be pre-tax contributions (excluded from income for federal income tax purposes) or Designated Roth Contributions (after-tax contributions and qualified distributions can be tax and penalty free). Employers contribute either matching or non-elective amounts to the retirement plan on behalf of eligible employees. A safe harbor 401k plan may help you with recruiting and retaining the best employees.
- Sole proprietorships, partnerships, limited liability companies (LLCs), or incorporated businesses, including subchapter S corporations, may establish a 401k plan. All eligible employees must be allowed to participate in the retirement plan.
- Designated Roth Contributions are an option for salary deferrals and there are no income restrictions on who may make these contributions.
- Salary deferral contributions up to $22,500 ($30,000 for age 50 and over) in 2023.
- Automatic Enrollment and Automatic Increase features are available to help employees save for their retirement.
- All employee and Safe Harbor 401k matching or non-elective contributions are 100% vested immediately. The employer may elect to use a graded vesting schedule for discretionary contributions.
- Generally, the deadline to establish a new plan is anytime between January 1 and October 1 of the applicable year.
- Tax-deferred growth — any investment earnings grow tax-deferred until withdrawn.
- Generally, the 10% tax penalty on distributions applies to participants under the age of 59½. Participants will have to pay federal income tax on the distributions.
- May be required to be 21 years old.
- May Require up to 1,000 hours of service from the date of hire to be eligible to participate.
- Union employees and non-resident aliens who have no U.S source of income may generally be excluded from coverage.
- Less restrictive eligibility requirements can be established.
- Owners may make salary deferral contributions of up to $22,500 ($30,000 for age 50 and over) in 2023, either excluded from federal income tax or as Designated Roth Contributions.
- There is flexibility in the amount of the employer discretionary contribution.
- Contributions can be electronically submitted after each pay period.
- The employer may choose a match equal to 4% to 6% of salary deferrals or at least a 3% non-elective formula for all eligible employees. This contribution is tax deductible to the employer.
- A discretionary contribution may be made to the plan, subject to deductibility limits (25% of all eligible participants' compensation less the total amount of Safe Harbor 401k contributions). There are several options available for the discretionary contribution.
- Employer contributions are tax-deductible to the employer.
- Safe Harbor 401k plans are not typically subject to non-discrimination testing.
- Our record keeper helps you with compliance reporting and filing the annual Form 5500.
Securities distributed by State Farm® VP Management Corp.
Securities are not FDIC insured, are not bank guaranteed and are subject to investment risk, including possible loss of principal.
Neither State Farm® nor its agents provide tax or legal advice.
Automatic investment plans do not assure a profit or protect against loss.