The Safe Harbor 401K Plan is immensely popular among small businesses due to the ease with which it can be administered and its extensive list of unique benefits. One of the most appealing aspects of this 401K plan is that business owners aren’t subjected to the hassle that is characteristic of Traditional and other alternatives. You can legally bypass IRS compliance testing with this plan, all while maximizing each of your employees’ contributions, without discriminating. To get started in administering this plan for your business, follow the guide below as provided by Ubiquity.
- Know Your Deadlines
Before you get started, know that there are deadlines for enrolling and administering 401K plans. These are designed to start at the very beginning of the year on January 1st. All other deadlines are based on this start date.
- August 23rd | Setting up a new 401K plan will likely take at least one week to complete, so getting in touch with a provider at this time (or a similar date before September 1st) is essential.
- October 1st | If your business does not yet have a 401K plan, and you wish to set up a new one with a Safe Harbor provision, it is best that you do so a minimum of 90 days before the year’s end. Although it is not required, you are encouraged to send your employees written notices of the upcoming change. The notice should educate them on their rights and what will be required of them with the new plan.
- December 1st | Those who already have a 401K plan but also need to incorporate a Safe Harbor Provision should do so a minimum of 30 days before the beginning of the following year. In this case, you would be required to send a 30-day notice to your employees.
- Compare with Other 401K Plans
Be sure that the Safe Harbor 401K plan is the right choice for you. Compare this alternative’s details with other kinds, such as Traditional, Simple, and Solo 401Ks. With the Safe Harbor option, you will reap the following benefits:
- You can bypass certain Internal Revenue Service (IRS) compliance testing
- You have greater flexibility in incentivizing employees to make contributions
- You will maximize retirement plan options for all employees
- As of 2020, you can earn up to $16,500 in tax credits in the first three years after opening a new 401K plan with auto-enrollment.
- Choose Your Matching Type
You can choose between the following selections for matching:
- Basic matching: Employee contributions would be matched 100% on the first 3%, and 50% matched on the following 2%. (To receive contributions, your employees will need to defer their funds.)
- Enhanced matching: Your business would match 100% of 4-6% of employee contributions. (This also requires deferred funds.)
- Non-elective contributions: Your company would contribute 3% of the W2 income belonging to employees’ who wish not to make contributions.
- Write Up and Administer the Plan
Your 401K plan provider will walk you through the logistics of establishing the details of your plan’s administration and help write a notice for your employees, all within the relevant IRS deadlines. They’ll help you determine funding (i.e., bank funds, self-direct assets, brokerage account), and get your Safe Harbor plan administered in full compliance with the IRS. Get in touch with a 401K plan provider today to get started.