Plan Types & Design
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401k Safe Harbor and Other Common 401k Retirement Plans


The first step with a prospective client is to determine the best plan design to meet the client's objectives.

401k Retirement Plans

The 401(k) Plan allows plan participants to defer their own money pre-tax into the plan. Taxes are paid on the pre-tax accumulations when the asset is taken out and spent. Roth after-tax contributions are also an option whereby the asset withdrawal is tax free.

Employer matching is discretionary. Both deferrals and matching contributions are subject to discrimination testing performed at least annually by the plan administrator.

401k Safe Harbor Plans

Many employers are opting to make "safe harbor" contributions within their 401(k) plans. There are two ways to accomplish this objective.

Non-elective 401k Safe Harbor

The Non-elective Safe Harbor Contribution is allocated to every eligible participant based on salary and the formula is 3% of annual compensation.

Matching 401k Safe Harbor

This plan type allows Safe Harbor Contributions to be allocated only to eligible participants that are deferring their own money into the plan.

The employer may choose 100% of the deferral of the first 3% of salary PLUS 50% of deferral of the next 2% of salary for all eligible participants; or 100% of the first 4% of compensation.

All Safe Harbor Contributions are 100% vested and subject to specific distribution requirements and prohibitions. Safe Harbor plans require 30 days notice to employees in advance of the plan year.


Most employers recognize this plan type because it is the most common and flexible for funding.

This plan design permits employers to make discretionary contributions on behalf of eligible participants based on a set formula found in the plan document. Usually the contributions are allocated based on the compensation of each participant.

There are variations on the traditional profit sharing formulas which use employee classes, age, and/or service with the company. These plans have special rules and are subject to the 401(a) (4) general discrimination test known as the comparability test.

These formulas typically allow the employer to provide different benefits to maximize the benefits to the owner and upper management while minimizing the cost to other participants.

Please contact us today so that we can help you sort through all these 401k retirement plans, and find the best one for you.