Safe Harbor 401(k) Plan

Tax Advantages

    • Employee deferrals are pre-tax and Employer contributions are tax-deductible
    • Employees pay no income taxes on contributions or earnings until the participant or their beneficiary receives them
    • Tax-deferral maximizes the compounding value and increases the participant's ultimate retirement income  
    • Employers pay no income taxes on contributions made to the plan on behalf of the Employees

Safe Harbor 401(k) Features

    • Employees can elect to defer from 0 up to 100% of their pre-deferred income, up to a maximum of $18,000 ($6,000 catch-up contribution allowed if employee is 50 years old, or older) (refer to Maximum Annual Contributions and Dollar Limits for more detailed information)
    • Payroll deductions make deferrals convenient and easy
    • Employee pre-tax deferrals reduce their Federal, State* and Local* income taxes but are subject to Social Security (FICA) tax
    • No salary deferral discrimination testing, Highly Compensated Employees (HCEs) are not subject to non-HCE deferral rates.  HCEs are guaranteed salary deferrals of up to $18,000
    • Mandatory Employer contributions of either:
      (1) 3% non-elective contribution to all eligible participants or 
      (2) Basic Matching Contribution equal to 100% match of first 3% of compensation deferred plus 50% match of next 2% of compensation deferred, or
      (3) Enhanced Matching Contribution example: 100% match of first 4% of compensation deferred
    • Mandatory Employer Contributions are 100% vested
    • Employee deferrals are always 100% vested

Plan Suitability

Safe Harbor 401(k) Plans are advantageous to the Employer when the Employer:

    • Wants to eliminate discrimination testing
    • Wants to give employees the opportunity to enhance their own retirement benefits
    • Wants employees to make part of the their contributions
    • Willing to commit to some employer contributions
    • Wants to limit Employer contribution obligations
    • Wants flexibility in making profit sharing contributions
    • Has relatively young key employees
    • Wants to attract and keep key employees

2015 Sample Safe Harbor 401(k) Allocation (assuming 3% non-elective contribution with new comparability profit sharing contribution)

401k safe harbor chart 2015

Employer contributions = Safe Harbor 3% of $24,435 and New Comparability Profit Sharing (NCPS) of $59,790

Total Employer contribution of $59,790 of which 90.48% is allocated to Officers/Shareholders.

For example purposes, we have assumed no employees will defer into the plan.

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