A Safe Harbor 401k Plan is ideal for a young business owner looking to start small and put aside some money for retirement.
A plan is a 401k Safe Harbor plan if you agree to make some minimal contributions to your employees in a pension plan.
A traditional 401k plan allows you to contribute up to $23,000 and another $7,500 if you are older than 50. These limits are for 2024 and are adjusted each year.
If you have employees, the IRS mandates you to provide a 401k plan to your employees so that they can start saving for retirement. In order to ensure that retirement plans are not too skewed in favor of highly compensated employees, the IRS requires certain compliance testing to be done. These tests can be complicated and can create significant overhead for you as a business owner.
Safe Harbor Non-Elective Plan
Safe Harbor 401k plans can be a better option for employers looking for ways to bypass some compliance tests. In exchange for the “safe harbor” status, employers are obliged to pay employers’ contributions.
A Safe Harbor Plan 401k will automatically be considered to meet some of the essential compliance tests.
Employer contributions made through Safe Harbor 401k are tax-deductible, reducing the employer’s taxable income.
As 401k can bypass certain compliance tests, all plan participants can maximize their contributions to the IRS limits.
The required mandatory employer contributions mean the 401k plan will be an attractive benefit to employees, which can help attract and retain employees and encourage them healthy plan participation.
Establishing a Safe Harbor 401k plan involves critical deadlines. By August 23, 2024, set up your Guideline Safe Harbor 401k Plan for the year. Send a 30-day notice to employees by September 1, 2024. The plan becomes effective on October 1, 2024, exempt from most nondiscrimination testing for 2024.
Employer contributions are due by the business tax return deadline, and employee elective deferrals should be promptly deposited. Adhering to specific IRS guidelines for mid-year amendments and plan terminations, including proper notice to employees, is crucial.
Stay informed to maintain compliance and optimize the benefits of Safe Harbor 401k plans for both employers and employees.
