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Safe Harbor 401k

A safe harbor 401k plan is designed to allow employees to contribute a portion of their earnings towards their own savings plan for retirement. This amount may be matched by the employer or it can be solely contributed by the employee. The amount of money contributed to the plan by the employee is not considered part of the income that will be taxed through Federal Income Tax. Employers will also receive taxable deductions for the amount of their contribution in the employee's plan. In general any resident or citizen of the United States that is over 21 and has worked at least one year that includes 1000 hours from the date of hire is considered eligible for a safe harbor 401k plan if offered through the employer. In addition all contributions by the employee are considered to be immediately vested, as are matching employer contributions. In addition to the immediate tax relief offered by a safe harbor 401k, all growth within the plan is tax deferred until withdrawal.

Fast Facts

  • Early withdrawal before the age of 59 ﾽ years of age results in an automatic 10% tax penalty.
  • Roth IRA contributions can be included in Safe Harbor 401k plans, providing additional tax benefits for the employee.

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