Three Most Common Safe Harbor 401(k) Plans
The IRS requires that safe harbor 401(k) plans must use a definition of compensation that complies with IRC Section 414(s).
A safe harbor 401(k) plan is exempt from many of the compliance requirements applicable to traditional 401(k) plans, such as ADP testing, provided it meets certain rules.
Below are the most common and preferred formulas for safe harbor 401(k) plans.
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100% match on the first 3% of deferred compensation plus a 50% match on deferrals between 3% and 5%. The cost incurred by the employer can be up to 4% of an employee’s annual salary.
A common formula is a 100% match on the first 4% of an employee’s deferred compensation, but can be as high as 6%. The cost incurred by the employer can be up to 4%-6% of an employee’s annual salary.
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