Start Of Main Content

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 $23,000 ($30,500 for age 50 and over) in 2024.
  • 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  • Tax-deferred growth — any investment earnings grow tax-deferred until withdrawn.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 $23,000 ($30,500 for age 50 and over) in 2024, 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.

Risk Disclosures

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.