Is Safe Harbor the Solution to your Company's Retirement Plan?

Is Safe Harbor the Solution to your Company's Retirement Plan?

October 19, 2016

The Safe Harbor plan makes it easy for business owners to maximize contributions to their own accounts while reducing some of the limitations associated with adhering to IRS testing.

The Safe Harbor Plan allows you to:

  • Contribute the maximum annual deferral amount $24,000 ($18,000 as an elective deferral plus $6,000 as a catch up contribution for those over the age of 50 for 2016), to your own 401(k) account.
  •  Receive additional company matching contributions (since you are an "employee" too!)
  • Avoid the hassles of IRS non-discrimination testing 
  • Get tax deductions for your matching contributions (subject to IRS limitations)
  •  Matching contributions aim to increase retention of current employees, and are a great recruiting tool for prospective hires.

In order to avoid non-discrimination testing, your business will need to “buy its way out” by making a minimum contribution to both your 401(k) account and your employees' accounts. Companies that choose a Safe Harbor plan must either:

  • Basic Match- Make a dollar-for-dollar match on the first 3% of employee deferrals and 50% on the next 2% contributed or;
  • Enhanced Match- Make a dollar-for-dollar matching contribution for all participating employees, 4% of each employee's compensation is a popular option;
  •  Contribute 3% of the employee's compensation for each eligible employee, regardless of whether the employee chooses to participate in the plan.

As you might expect, advance preparation and planning is always necessary in order to establish a new plan or redesign an existing one. Therefore, now is the time to consider whether a Safe Harbor feature is right for your company in order to help ensure that it can be fully operational the deadline is December 1st for existing plans being redesigned for 2017.

For more information on how your company could get the most out of your 401k, plan contact Joe Trybula at 800-307-0376 or

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