Overview

The 401(k) Safe Harbor Plan is a more advanced plan than a SIMPLE IRA.  It is a 401(k) plan with special provisions which eliminate complicated and expensive testing requirements.  Like other 401(k) plans, it offers the employees an opportunity to defer their pay, and the safe harbor provisions provide for an employer contribution.  This plan can also be paired with a profit sharing plan to enable larger overall contributions (up to the maximum limits).  Most 401(k) plans have administrative fees, you and are required to file an annual report (form 5500). 

Contribution Limits

• Maximum Contribution for 2007: 100% of pay up to $15,500
• Maximum Catch up Contribution for 2007: $5,000

Employer Contributions

• Matching Option:  A dollar for dollar matching contribution up to 3% plus $.50 for each dollar of the next two percent.
• Non-elective Contribution:  A 3% contribution for all eligible employees.

Administrative Costs

Administrative costs will range between $500 and $1,500 annually depending on the number of participants in the plan.  There are also set up fees which vary from $500 to $750.  (You may be eligible for a tax credit to offset those fees). 

Other Considerations

• 401(k) plans have higher overall contribution limits than a SIMPLE IRA
• Compared to traditional 401(k) plans, the administrative fees are considerably lower.
• These plans can be paired with profit sharing plans for larger overall benefits.
• There is no vesting schedule on the Safe Harbor contributions.
• You can place restrictions on eligibility.