Reward Your Employees with a Plan for Retirement Savings Including a Safe Harbor 401(k)
A Safe Harbor 401(k) Plan is a specific type of 401(k) plan that encourages employee participation and provides employers less restrictive rules for setting up plans relative to traditional 401(k) plans. The Safe Harbor 401(k) 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 plan on behalf of eligible employees. A 401(k) plan can help you with recruiting and retaining the best employees.
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- Sole proprietorships, partnerships, limited liability companies (LLCs), or incorporated businesses, including subchapter S corporations, may establish a 401(k) plan. All eligible employees must be allowed to participate in the plan.
- Designated Roth Contributions are an option for salary deferrals and there are no income restrictions on who may make Roth contributions,
- Salary deferral contributions of up to $17,500 ($23,000 for age 50 and over).
- Automatic enrollment and automatic increase features are available to help employees save for their retirement.
- All employee and Safe Harbor 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- Tax-deferred growth — any investment earnings grow tax-deferred until withdrawn.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.
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