What Are the Benefits of a Safe Harbor 401(k) Plan?

Financial Planning Dentist

A safe harbor 401(k) plan is a retirement savings plan that has advantages for both employers and employees. Here’s why it’s a good choice:

  1. Easy Compliance: Safe harbor plans help employers by automatically passing certain annual tests. These tests, like the ADP and ACP tests, ensure fairness in the plan and prevent favoritism toward business owners and highly paid employees. Failing these tests can be expensive, so passing them without worry is a big plus.
  2. Encouraging Savings: To meet safe harbor standards, employers need to make contributions to their employees’ accounts. This serves as an incentive for more employees to join the plan and rewards them for saving.
  3. Flexibility in Contributions: Employers have options in how they contribute. There are two plan types: traditional safe harbor plans with specific contribution formulas and immediate vesting, and QACA safe harbor plans with slightly lower matching contributions and shorter vesting schedules. Both types offer different contribution formulas, so you can tailor it to your needs.

If you’re interested in setting up a safe harbor plan, contact InSight.

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