What is a Safe Harbor 401k Plan

Many companies have a safe harbor 401k plan. But, what is it?

If you have a 401k then you know that a 401k is subject to certain IRS rules. Basically the rules prevent business owners from having a 401k for themselves. In other words, the business owner can’t have a 401k without offering it to the employees. In addition, the business owner can’t contribute large sums of money to the 401k if the employees are not contributing.

401ks are subject to these complex rules and sometimes that can be quite expensive to administer. Enter the safe harbor 401k plan. In 1999 Congress decided to change the rules and make it simpler for small business owners to operate a 401k. With the Safe Harbor 401k plan, a business owner could contribute the maximum amount to a 401(k) without having to worry about some of the more complex rules and regulations. The company just has to follow the safe harbor 401k plan matching formula.

Most people think that the safe harbor 401k plan is a separate type of 401k plan. However a safe harbor 401k plan is a regular 401k that just uses a strategy to minimize cost and complex issues. Today most small businesses with a 401k use the safe harbor 401k plan.

To learn more about Safe Harbor 401k Plan, Read our page on Safe Harbor 401k Rules.