A safe harbor 401(k) plan includes an employer match, which will eliminate many of the plan’s annual compliance tests. By including a safe harbor provision in a 401(k) plan, highly compensated employees can maximize their annual deferral amounts for the calendar year.
To qualify, employees must be able to make 401(k) salary deferral contributions during the last three months of the plan year. Calendar year plans must be operational by October 1, 2021 to meet the test.
A new 401(k) plan takes approximately 5 to 6 weeks to establish, making August 20, 2021 the deadline for initial 401(k) paperwork.
Benefits of Safe Harbor 401(k) Plans
- Exempts your 401(k) plan from many annual compliance tests
- Optimizes your highly compensated employees’ personal retirement savings
- Reduces an employer’s taxable income, as with any employer contribution