Setting up a Safe Harbor 401K for Your Employees

Posted on: Wednesday, September 4, 2013

Most companies offering a 401K plan customize their plans. This is because, frankly, no two companies are alike. The biggest difference, of course, is predicated on how a business is able to reward its employees.  Not surprisingly, some companies may not be in the position to offer a matching contribution to their plan; or they may prefer to reward loyalty by offering incremental matches as their employees hit anniversary marks, thus insuring the greatest return on their investment.

Still, if you want to attract excellent employees, some contribution to a plan is recommended. This is why, given the complexities of small business demands, your business might want to consider a Safe Harbor 401K.

The Safe Harbor 401K may be the most popular choice for businesses with fewer than 15 employees. It is, essentially, a profit sharing plan.  The required match is 4%, which is only slightly higher than the regular 401K, and only for those who actually defer. A significant advantage of the Safe Harbor plan is that only employees who are 21, and work 1,000 hours or more in their first year, are eligible. Part time or seasonal employees are usually exempt. Business owners are allowed to contribute the maximum deferral amount to their own account ($17,500, or $23,000 for those 50 year of age and over in 2013), and they meet all IRS requirements for savings investment plans.

Ultimately, a Safe Harbor 401K plan satisfies all the criteria a small business has for establishing a 401K plan. It offers incentives to potential employees to join the company, as well as to current employees to stay with the company and its plan. This also gives management an open door to participate in a tax friendly plan which promotes loyalty and longevity. 

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