Safe Harbor 401(k) Plans – More Savings, Less Hassle

Safe Harbor 401(k) plans make it easy for business owners to maximize contributions to their own accounts as they automatically satisfy the required IRS non-discrimination testing. That is why the Safe Harbor plan design is our most popular 401(k) retirement plan for businesses with employees.

The Safe Harbor plan allows you to:

  • Contribute the maximum annual deferral amount ($19,500) to your own 401(k) plan
  • Receive additional savings from your company's matching contributions (you're an "employee" too)
  • Avoid the hassles of IRS non-discrimination testing
safe harbor

Get Tax Deductions for Your Matching Contributions

More good news: come tax time, your business can deduct all matching contributions (within the deductibility limitations imposed by the IRS) to employee accounts. And don't forget, matching contributions help increase employee retention, and are a great recruiting tool for prospective hires.

Automatically Satisfy IRS Testing

All 401(k) plans except Solo 401(k)s are subject to government tests to help ensure the plan is serving the best interest of employees and not just high earners. A Safe Harbor plan allows you to automatically satisfy non-discrimination testing by providing an immediately vesting match. Companies that choose a Safe Harbor plan must either:


  • Make a dollar-for-dollar matching contribution for all participating employees on the first 4% of each employee's compensation (this is the most popular option), OR
  • Contribute 3% of the employee's compensation for each eligible employee, regardless of whether the employee chooses to participate in the plan.

Safe Harbor plans work particularly well for companies that have consistent streams of revenue. Businesses finding it difficult to maintain matching funds year-round might find that a 401(k) plan without Safe Harbor could make more sense.

Frequently Asked Questions


  • A Safe Harbor 401(k) plan generally satisfies the non-discrimination rules for elective deferrals and employer matching contributions. For a 401(k) plan to be considered a Safe Harbor plan, employers must satisfy certain contribution, vesting, and notice requirements. So, let's say you have 25 employees, but only a third of them choose to put money into the plan. There's a formula that limits the amount you can personally contribute to a traditional, non-Safe Harbor plan. Under a Safe Harbor 401(k), if you're willing to make a minimum contribution on behalf of your employees, you'll be able to maximize your own personal contributions to the plan.

  • Find out with a free online needs assessment by answering a few simple questions about your business.

  • Generally, the U.S. Government wants to ensure that 401(k) plans do not favor Highly Compensated Employees (HCEs) over Non-Highly Compensated Employees (NHCEs). The government has established required compliance tests to verify all employees have fair representation in a plan. The Safe Harbor plan helps you automatically pass the non-discrimination testing by making contributions on behalf of your employees.

  • Employers may choose between two Safe Harbor contribution options. These accounts are 100% vested and must be funded on a per-pay-period basis.

    • An employer matching contribution of 100% of employee elective contributions (both pre-tax and Roth) on the first 4%, 5%, or 6% of compensation, OR
    • An employer non-elective contribution of 3% of compensation for all eligible employees.
  • There are generally three main types of compliance tests required to be performed on a 401(k) plan to ensure employers treat employees fairly:

    • Actual Deferral Percentage (ADP) test – compares the deferral percentage of HCEs and NHCEs. (Generally, the HCE deferral amount cannot be more than two percentage points higher than the non-HCEs' average.)
    • Actual Contribution Percentage (ACP) test – compares employer matching contributions between the HCEs and NHCEs.
    • Top-Heavy test – determines if the account balances of key employees is greater than 60% of the total assets of the plan.
  • Highly compensated employees are generally defined as individual(s) with more than 5% ownership, family members of a more than 5% owner (spouse, parents, children or grandparents), or employees who earned more than $130,000 in the previous calendar year.

  • Generally, all HCEs will be limited to defer only about 2% more than the average of all eligible Non-Highly Compensated Employees (NHCEs). If the plan does not have any eligible NHCEs participating in the 401(k) plan then none of the HCEs would be able to participate either.

  • Safe Harbor plans are required to be set up 3 months prior to the plan year-end date (by October 1st for those with a calendar fiscal year). It typically takes 1-2 weeks from the purchase date to be able to install your plan. Plan installation date requirements are contingent upon the plan type being adopted and whether it is an existing or startup plan. Specific deadlines are set for each year.