What Is a Safe Harbor 401(k)?

Part of the Small Business Job Protection Act, a Safe Harbor 401(k) makes it easier for small businesses to offer retirement plans to their employees.

the word 401(k) written on a whiteboard
(Image credit: Getty Images)

Safe Harbor 401(k)s are retirement plans with one key distinction from standard 401(k)s — businesses can avoid the IRS's annual nondiscrimination testing. Safe Harbor plans require immediate vesting for employees and mandatory employer contributions and are especially valuable to small business owners with fewer than 100 employees. 

These plans make it easier for small-business owners to meet the rules set by the government while offering an attractive employee perk. However, Safe Harbor 401(k) plans come with a catch. While matching your employees’ contributions is great for your employees' financial well-being, and may help your company recruit and retain good employees, it could also increase your overall employee budget. 

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Kathryn Pomroy

For the past 18+ years, Kathryn has highlighted the humanity in personal finance by shaping stories that identify the opportunities and obstacles in managing a person's finances. All the same, she’ll jump on other equally important topics if needed. Kathryn graduated with a degree in Journalism and lives in Duluth, Minnesota. She joined Kiplinger in 2023 as a contributor.