Every business needs a retirement savings plan for its employees. In order to stay competitive, many businesses are implementing new types of 401K plans that offer more flexibility and convenience than the traditional ones. Of all the business 401K plans in Boca Raton, the Safe harbor 401K plan is one of the most popular and efficient.
Safe harbor 401K plans are a qualified retirement plan for small businesses, generally with up to 100 employees. A typical safe harbor 401K plan allows employees to make contributions on a pre-tax basis, subject to the limitations of the Internal Revenue Code. There are no limits to the amount that can be contributed to a safe harbor 401K account. These plans generally allow loans and hardship distributions if the participant becomes unemployed or disabled.
We will now see the main benefits of Safe harbor 401K plans.
- Talent retention
For talent retention, employers need to provide employees with a sense of ownership in their company. One way to do this is through a safe harbor 401K plan. Such plans are exempt from the 10% premature withdrawal penalty normally imposed on funds before age 59 1/2. Employees can take withdrawals for any purpose before age 59 1/2, which may be important in order to cover unforeseen medical expenses or other emergencies.
- Employer tax savings
When an employee and employer agree to contribute a portion of the employee’s earnings to a retirement plan, the employer receives a tax deduction for the contribution. The IRS typically limits deductibility to $18,000 per year. A Safe Harbor 401K plan is set up as a way for employers to pay their employees’ contributions without any limitations on deductions. This allows both parties to benefit from the arrangement and provides greater flexibility that traditional 401(k) plans would not offer.
- Easy plan administration
A Safe harbor 401K plan is a retirement savings account that has simple administration and low cost. These plans are set up as an individual, non-profit, or as a part of a for-profit company. A 401k plan with the Safe harbors is known to have lower operating costs because of the absence of ERISA requirements. A 401k with safe harbors typically requires less administrative work by the employer because they are not providing group benefits or insurance products.
- Flexible plan designs
The Safe Harbor 401K plan has many flexible design features that will work for many business owners. The contributions can be made on a pre-tax or after-tax basis, and the employee may be able to elect 100% of their contributions on a Roth basis. Employees can also make voluntary contributions to this type of plan in order to increase their retirement savings.
