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February 15, 2009

Safe Harbor 401(k) Plan

Your Guide



401(k) plans that make contributions in accordance with a safe-harbor formula, resulting in the plan not being subject to the ACP and ADP nondiscrimination testing, and the top heavy testing. Generally, 401(k) plans must perform ADP , ACP and top heavy testing in order to be in compliance with regulatory requirements. If the plan fails the tests, corrective action must be taken. An employer may avoid these tests by ensuring contributions satisfy one of the safe harbor formulas

Referring Cite

Treas. Reg. §1.401(m)-3, Revenue Procedure 2004-13 IRS Notice 98-52 and Notice 2000-3

Additional Helpful Information

  • Safe-harbor 401(k) plans are attractive for small businesses because they avoid the nondiscrimination tests, which can be costly.
  • Contributions to safe-harbor 401(k) plans are immediately 100% vested

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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