two staircases clouds and a man walking towards the stairs

What Type of Retirement Plan Should My Business Implement (Part 7)?


Safe Harbor 401(k) Plan Basics

A safe harbor 401(k) plan is simply a 401(k) plan that includes a safe harbor feature. There are a few options when it comes to the safe harbor feature, but by electing this feature, the employer commits to making minimum contributions to their employees.

This is a very popular feature when designing a 401(k) plan because it enhances the plan by:

Allowing all employees, including owners, to maximize their 401(k) deferrals up to the $23,000 limit (or $30,500 limit if at least age 50). Without the safe harbor feature, highly-paid individuals are often restricted to deferrals much lower than the maximum amount.

What are the two most common safe harbor options?

  1. BASIC MATCH CONTRIBUTION = Employer contributes $1 for every $1 employee contributes (up to 3% of compensation), PLUS 50 cents for each additional $1 the employee contributes, up to 2% of compensation.  (Maximum employer match = 4% of compensation.)
  2. QUALIFIED AUTOMATIC CONTRIBUTION ARRANGEMENT (QACA) = Employer contributes $1 for every $1 employee contributes (up to 1% of compensation), PLUS 50 cents for each additional $1 the employee contributes, up to 5% of compensation.  (Maximum employer match = 3.5% of compensation.)
  3.  NONELECTIVE CONTRIBUTION = Employer contributes 3% of employee’s compensation (Employee does not need to make 401(k) deferrals to receive this contribution.)

* Unlike a SIMPLE IRA or SIMPLE 401(K), additional employer contribution limits are much higher in a 401(k) plan which allows owners to maximize annual savings.  

* A vesting schedule can be applied to additional employer contributions made in a 401(k) plan to reward employees for continued employment with your business, unlike SIMPLE contributions that must be vested as soon as they are contributed.

Maximum Annual Retirement Contributions

Participant AgeEmployee DeferralRequired Employer ContributionAdditional Contributions*
Less than Age 50$23,000Safe Harbor OptionUp to $69,000
Age 50 or Older$30,500Safe Harbor OptionUp to $76,500

*Additional Contribution + Employee Deferral + Safe Harbor Contribution cannot exceed amount shown. Understanding your safe harbor options is important before you choose this type of plan design. It’s always best to have an expert help you weigh the pros and cons based on your particular situation.

Go to the Part 8 post in this series

More from Liberty

Beyond the $450 Million Settlement: What Real Estate Professionals Need to Know

The real estate industry continues its rapid evolution, and the intersection of technology and legal challenges has created a tumultuous landscape for agents and brokers. On March 14, 2024, a significant milestone occurred when the National Association of Realtors (NAR) settled a landmark lawsuit for over $450 million. Additionally, the NAR agreed to change commission rules that previously required the seller to pay both the selling broker and the buyer’s broker. This settlement not only reflects the shifting dynamics within the industry but also sets the stage for a deeper examination of the challenges faced by real estate professionals, particularly in the context of class actions and antitrust litigation.

Read More »

Looking for Insurance?

See how Liberty can provide you or your business with great coverage and great rates.

1. ZoomInfo Form - Info Request
Do you require coverage for inflatable equipment?

Note: Liberty does not currently insure inflatable equipment. We are happy to discuss coverage for any other equipment.

ZoomInfo Hidden - Contact Info

ZoomInfo Hidden - Company