• Money
    • Budget
    • Shop
    • Travel
    • Stories
  • Career
    • Advice
    • Entrepreneurship
    • Freelance
    • Small Business
  • Investing
    • General
    • IRA + 401K
    • Stocks + Bonds
    • Retirement Planning
    • Estate
  • The Basics
    • Student Loans
    • Credit Cards
    • Debt
    • Taxes
    • More
  1. Home
  2. Investing
  3. IRA + 401K
  4. 401(k) Safe Harbor Investment Rules

401(k) Safe Harbor Investment Rules

By: Alibaster Smith
  • Share
  • Share on Facebook

401(k) plans can be set up in a variety of ways. A safe harbor plan uses a structure that automatically satisfies the Internal Revenue Service's requirements for nondiscrimination on elective deferrals and employer matching contributions. If you are considering setting up a safe harbor plan for your company, you will need to know the rules under which you must operate to avoid violating the law.

...
401(k) safe harbor plans can make setting up a retirement plan simple by avoiding nondiscrimination tests.

Vesting of Contributions

All employer contributions must be fully vested when made. This means that an employer-matching contribution must be made available to the employee as soon as it is deposited into the employee's retirement account. If the employee leaves the company, he will be allowed to take all of his retirement account with him.

Matching Contributions

Employers must provide matching contributions. However, they have a choice as to how they provide them. The employer can provide a non-elective contribution of at least 3 percent of the employee's pay or a matching contribution. A non-elective contribution means that the employee does not contribute any of his own money to the retirement plan. The matching contribution, under safe harbor rules, can be a dollar-for-dollar match on contributions made by the employee up to 4 percent of the employee's pay, or a dollar for dollar match on employee contributions up to 3 percent of employee pay or a match of 50 cents on the dollar for employee contributions between 3 and 5 percent of compensation.

Video of the Day

Notice To Employees

Employees must be given proper notice every year under IRS regulations about their safe harbor plan. The plan must outline the rules and regulations of the plan and must outline the employee's rights under the plan.



Show Comments

Related Articles

How to Withdraw 401(k) Money Without Penalty

How to Withdraw 401(k) Money Without Penalty

Investing
IRA + 401K
By: Craig Berman
Is My 401(k) Tax Deductible?

Is My 401(k) Tax Deductible?

The Basics
Taxes
By: Fraser Sherman

PARTNER CONTENT

4 Habits That Helped Me Stop Scraping By

4 Habits That Helped Me Stop Scraping By

Can I Draw My Money Out of My 401(k) if I Lost My Job?

Can I Draw My Money Out of My 401(k) if I Lost My Job?

Investing
IRA + 401K
By: Jackie Lohrey
How to Avoid IRS Tax Penalties for a 401(k) Early Withdrawal

How to Avoid IRS Tax Penalties for a 401(k) Early Withdrawal

Investing
IRA + 401K
By: Fraser Sherman
You Need to do This to Retire

You Need to do This to Retire

Investing
IRA + 401k
By: Nicole White

Get Weekly Savings& Finance Tips.

  • Money
  • Career
  • Investing
  • The Basics
  • About
  • Contact Us
  • Terms
  • Privacy Policy
  • Copyright Policy
© 2019 Leaf Group Ltd. Leaf Group Media

Get Weekly Savings
& Finance Tips.

Money Made Easier.

Please enter a valid email.