Safe Harbor 401k Plan

The Safe Harbor 401(k) Plan is a kind of 401(k) retirement plan that promotes employee participation and provides employers easy in setting up plans, without concerning about discrimination in favor of highly compensated employees. The Plan comes under the provision of Internal Revenue code which reduces or eliminates a taxpayer's liability on a condition that the taxpayer acted in good faith.

Safe Harbor 401(k) allows the employees to take part and also helps employers to make a proper and lenient form of the plan. This type of retirement plan came into effect after the establishment of the Small Business Job Protection Act in the year 1996.

If you are looking to enjoy more benefits in a secure way, opt for the Safe Harbor 401k Plan. It helps you have financial stability even after you retire from your job. The benefits have made the Safe Harbor plan a preferred choice among the Americans.

• By being covered under this plan, the employees can contribute a part of their salary or earnings into the retirement savings plan.


• The employers are allowed to contribute both matching and non-elective amounts to the plan as per the needs of the employees.


• The contributions of the employees are exempted from the Federal Income Tax or other taxes while the contributions made by the employer are tax deductible.


• Compared to the other retirement plans, widespread discrimination testing is not required in case of a safe harbor 401(k) plan.

The Safe harbor 401(k) Plan is very much applicable for small businesses, partnerships, limited liability Corporations (LLCs), sole proprietorships, businesses which are incorporated and so on. Any employee who is eligible should be allowed to take part in the plan. An employee who decides to participate in the plan should :-

• Attain the age of at least 21 years.


• Should have worked for at least one year for an overall period of 1,000 hours from the date of hire.

Safe Harbor Plan Rules

Safe harbor 401(k) plan rules are specified in different Internal Revenue Code sections. One particular section of interest to arts & crafts business owners is Section 530 which talks about proper classification of workers. The Section 530 prevents the Internal Revenue Service from e-classifying the workers in case the employer has a reasonable base for treating the worker like an independent contractor.

There are certain terms and conditions that are needed to make a Safe Harbor 401(k) account. You need to provide some information and documents to the IRS for the purpose of the plan. You need to fill up the Form 5500 and other details with the IRS very year.

All the participants of the plan and the beneficiaries should get a summary plan which can be easily understood. The plan should come to them within 90 days from the period of their eligibility. An annual summary report should also be send within 7 months after each plan ends.

In most cases, the Safe Harbor 401k plan needs to be made in the period between January 1 and October 1 of that particular year. One can opt for the plan anytime during the said period.