Just learned about this the other day, Safe Harbor 401Ks: The Problem Safe Harbor 401(k)s Are Designed to Solve Before you try to understand what a safe harbo

Just learned about this the other day, Safe Harbor 401Ks: The Problem Safe Harbor 401(k)s Are Designed to Solve Before you try to understand what a safe harbor 401(k) is, you should know why someone would want one. Most 401(k) plans face an annual non-discrimination test. The IRS checks to see if a highly compensated employee or business owner is maxing out 401(k) contributions for the year, while the rest of the employees lag in their savings. The IRS wants to see that all employees are taking advantage of the retirement plan, not just those with the high paying jobs. So it tests the plan to find out if the average contributions of highly compensated employees (those who earned at least $120,000 in 2016 or own more than a 5 percent stake in the business) do not exceed the average contributions of everyone else by more than 2 percent. If you're a business owner and your 401(k) has low adoption rates or saving rates among rank-and-file employees, it may raise a flag for the IRS. According to Plan Sponsor Council of America (a lobbying business for the retirement planning industry), most businesses pass the test, but around 40 percent claim to have reported refunding or restricting plan contributions to do so. That's right, refunding contributions! The IRS can actually reject a retirement plan contribution that it feels is excessive. https://www.thebalance.com/what-is-a-safe-harbor-401-k-2894205 https://www.thebalance.com/what-is-a-safe-harbor-401-k-28942...