Now is the time for small business owners to act.
October 1 is the deadline for companies to set up Safe Harbor 401(k) plans for 2019. If you want to put one in place at your business, you need to give your employees notice at least 30 days in advance – so that means you must act fast. You must set up the plan by August 30, and notify your workers by September 1. [1,2]
Why do small businesses start Safe Harbor 401(k)s? In a nutshell, they want a retirement plan that rewards top talent, a plan that is exempt from yearly non-discrimination testing, and a plan that encourages more employees to participate with the help of mandatory matching or non-elective employer contributions. 
A Safe Harbor 401(k) provides a great way to show your top talent how much you value them. Together, an employee and an employer may contribute a) up to $55,000 or b) up to 100% of the employee’s annual compensation per year to a Safe Harbor 401(k) account, whichever is lesser. If you have a key employee who needs to save much more for retirement, a Safe Harbor 401(k) plan has great merit. 
How does a company make contributions to a Safe Harbor 401(k)? A business has two matching contribution options. It can either match a) 100% of each employee’s 401(k) contributions, up to 3% of their compensation, and then match 50% of the next 2% of their compensation, or it can match b) at least 100% of each employee’s contributions, up to 4% of their compensation (optionally, an employer can provide a 100% match of up to 6% of compensation). Either way, workers must contribute to their Safe Harbor 401(k) accounts to obtain the employer match. 
Alternately, a business with a Safe Harbor 401(k) can make non-elective account contributions of at least 3% of each employee’s compensation whether the employee contributes or not. 
Your company is entitled to a tax deduction for its contributions. All employer contributions to a Safe Harbor 401(k) vest immediately – that is, your workers own 100% of the money you contribute to their accounts as soon as you contribute it. [2,3]
So, act fast to meet the coming deadlines. If you want a retirement plan free of those bothersome, annual non-discrimination tests, then choose a plan that gives your business “safe harbor” from them, while allowing you to help your employees save consistently for their retirements. Ask about putting a Safe Harbor 401(k) plan into place at your firm.
As always, the Moneywise team is here and accessible to help guide you through the tangled web of retirement plans, Safe Harbor and otherwise. We can assist and help determine what type of plan makes the most sense for your organization and help implement these strategies so you don’t have to. If you have any questions or would like more information, please call the Moneywise Wealth Management office: 661.847.1000 or directly contact our 401k specialist, Justin Leland, at email@example.com.
BE SMART. BE SAFE. BE MONEYWISE.
*Disclosure* The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.
2019 Marketing Pro Content + Citations:
1 – irs.gov/retirement-plans/mark-your-calendar-4 [7/3/18]
2 – guideline.com/blog/safe-harbor-401k-plan/ [4/26/18]
3 – dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/publications/401k-plans-for-small-businesses.pdf