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Can a Business Owner Receive a Safe Harbor Contribution?

Owners and highly compensated employees who are eligible participants in a safe harbor 401(k) plan are typically allowed to receive an employer contribution using the same safe harbor formula that is applied to the rank-and-file plan participants. However, some plans that use a cross-tested allocation method may exclude owners and/or highly compensated employees from receiving a safe harbor contribution. The adoption agreement will detail the safe harbor allocation provisions for each plan.

Safe harbor plans may also provide additional benefits to business owners, including the following:

  • Safe harbor contributions may satisfy top heavy requirements.
  • 3% Safe harbor nonelective contributions may be included in cross-testing.
  • Safe harbor plans are deemed to satisfy nondiscrimination testing which allows all participants to maximize contributions, up to the annual IRS limits.
  • Offering a safe harbor contribution can help employers attract and retain qualified employees.
  • Contributions made to a safe harbor plan typically qualify as a tax deduction for the employer.


Blog authored by Sara Lewis, Retirement Plan Administrator. 

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