What You Need to Know About a Safe Harbor 401(k)

This 401(k) retirement plan offers generous perks for small business owners and employees alike.

FOR WORKERS, A STANDARD 401(k) plan offers a straightforward and tax-advantaged way to save for retirement, but for employers, setting up a 401(k) plan is anything but simple. Companies who want to offer 401(k) savings plans to their employees must ensure they don’t run afoul of complicated government rules.

A key regulation for most 401(k) plans is the requirement for annual nondiscrimination tests that are designed to prove a plan doesn’t unfairly favor certain employees. “The purpose of a safe harbor plan is to exempt the (business) from those tests,” says Allison Brecher, general counsel and chief compliance officer for Vestwell, a digital retirement platform. By setting up a safe harbor 401(k), a business can provide its employees with the same tax benefits as a regular 401(k) plan but skip the onerous annual testing requirements.