What Is a Safe Harbor 401k or QACA Safe Harbor 401k?

By Mike Jesowshek, CPA

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Posted on February 15, 2022

When we are working with businesses that are leaning towards the 401k route we traditionally see them organize into a Safe Harbor 401k or QACA Safe Harbor 401k.

What Is A Safe Harbor 401k?

A Safe Harbor 401(k) plan is a type of 401(k) with an employer match that allows you to avoid most annual compliance tests.

Contributions and Matching
- Contributions up to $19,500 for 2021.
- Allows employer & highly compensated employees to maximize their own contributions.
- Pre-approved IRS matching & vesting schedules.
Tax Advantages
- Employer contributions are deductible business expenses.
- Elective contributions and investments gains may enjoy tax deferral until distribution.
- Offers both pre-tax and Roth options.
Filing and Compliance
- Requires annual 5500 filing.
- A Safe Harbor 401(k) allows the plan sponsor to automatically pass certain annual compliance testing to ensure IRS compliance.

What Is A QACA Safe Harbor 401k?

Qualified Automatic Contribution Arrangements (QACAs)

Main Differences
- QACA requires auto-enrollment and with that the employer may receive an additional $500 tax credit.
- Matching Schedule is 3.5%
- Vesting Schedule is 2 years.

If you are looking for professional advice and help in this area, we work directly with Life, Inc Retirement Services. Email us for an introduction or visit this page.

On the link above you can setup a call to connect with an expert and get started right away. There is also a retirement plan evaluator which will guide you towards the best plan for your business.

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