Safe Harbor 401(k) Plan

The Safe Harbor 401k Plan allows employees & owners to contribute up to the IRS limits with no concerns of receiving refunds of their contributions.

A Safe Harbor 401k plan is similar to a Traditional 401k plan, but, among other things, must provide for employer contributions that are fully vested. However, the Safe Harbor 401k is not subject to many of the complex discrimination and compliance rules that are associated with a Traditional 401k plan, including the ADP and Top-Heavy tests.

With a Safe Harbor plan, the employer has the option to choose either a matching or non-elective (profit-sharing) contribution. The Basic Safe Harbor Match Formula is a dollar-for-dollar match up to 3% of the employee’s compensation, and 50 cents on the dollar for the employee’s contribution on their next 2% of salary deferred. (Other matching formulas are available.) Alternatively, you can make a non-elective contribution equal to 3 percent of compensation to each eligible employee’s account. Each year you must make either the matching contributions or the non-elective contributions.

Maximum Deferral Amount (employee contributions):

  • The IRS Limit: $20,500 for 2022.

Catch Up Contribution (for participants over age 50):

  • The IRS Limit: $6,500 for 2022; participants over age 50 may contribute $27,000 for 2022 ($20,500 + $6,500).

Eligibility Requirements (optional):

  • You may require an employee complete 12 consecutive months of employment with at least 1000 hours of service during those 12 months (one year of service).
  • You may choose to exclude employees who are under age 21.

Entry Dates (optional):

  • Monthly, quarterly or semi-annually.

Employer Contributions:

  • To qualify as a Safe Harbor plan, the employer must provide a match or profit-sharing contribution to all eligible employees.
    • Matching formula: At least 100% of the first 3% of salary deferred plus 50% of the next 2% of salary deferred. For example: An employee that contributes 5% of their salary or more would receive a match equal to 4% of salary.
    • Profit-Sharing Formula: At least 3% of compensation
  • The Safe Harbor plan design exempts the plan from the testing restrictions that may limit the amount that company owners and highly compensated employees can contribute.


  • Safe Harbor contributions are immediately 100% vested.


  • Loans and Hardship withdrawals are permitted.
  • Minimum loan amount is $1,000.
  • Maximum loan amount is one half the vested account balance but no more than $50,000.

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