Safe Harbor 401k Rules

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Businesses with a Safe Harbor 401k, don’t know the Safe Harbor 401k Rules. Often times not knowing the Safe Harbor 401k Rules can get you into compliance issues with the IRS. Here are some you should know.

First, all contributions are 100% vested. Thus, an employee is always entitled to 100 percent of the contributions in the Safe Harbor 401(k) when they quit or even if they get fired. Regardless of the amount of time the employee worked, they are entitled to 100% of the money in the account.

Another of the Safe Harbor 401k Rules is the matching contribution. The employer, to avoid most of the complex rules and regulations, must match contributions to a safe harbor 401k. There are two basic types of matching contributions. Contributions can be matched at a rate of 3% of salary or dollar for dollar up to 3% and then 50% on the next 2% of salary.

The Safe Harbor 401k Rules say that if you use the 3% match, the 3% goes to every full time employee regardless of whether they contributed to the plan or not. Under Safe Harbor 401k Rules, if you use the dollar for dollar method the maximum matching contribution for an employee is 4% of salary.

The Safe Harbor 401k Rules also allow for a more complex matching formula. Read More About Safe Harbor 401k Rules

To learn about a special Tax Free 401k check out our Tax Free Page

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