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Is a Safe Harbor Plan Right for my Business?

Is a Safe Harbor Plan Right for my Business?

September 23, 2021

Safe Harbor 401(k) plans are the most popular type of 401(k) sponsored by small businesses today. A Safe Harbor plan is a special kind of 401(k) that is exempt from nondiscrimination testing. It has certain built-in elements that help all employees save by requiring companies to contribute to their employees’ 401(k) accounts. When employers take this step to encourage more employees to participate, the IRS offers them “safe harbor” from both the nondiscrimination testing process and the consequences of failure.

Safe Harbor Plans for Businesses

Deciding if a Safe Harbor plan makes sense for your business depends on your company and how much incentive you want to give employees to join your company, continue their service, and help them strengthen their financial wellness through retirement contributions.

Many 401(k) plans are designed for small businesses under 10 employees. A Safe Harbor 401(k) may be a good fit depending on your business requirements, employee pool, capacity to match contributions, and ability to undergo compliance testing. Advantages include:

  • Tax benefits that can help offset the cost of plan administration.
  • A tool to help attract and retain quality employees.
  • High contribution limits: up to $19,500 of salary, tax deferred.
  • Enabling of profit-sharing.
  • Tax credits to eligible employers of up to $15,000 ($5,000 per year for three years).

Safe Harbor Plan Deadline is October 1

The deadline to start a new Safe Harbor Plan is quickly approaching. If you would like more information about starting one of these plans or retirement planning, reach out to us now to enable plan installation before the October 1 deadline.