The Internal Revenue Service (IRS) allows employers to offer a variety of 401k plans, including the Safe Harbor 401k. While Traditional 401k plans and Safe Harbor 401k plans have many similarities, they also have some differences, including:
- Employer contributions to a Traditional 401k are optional, unless the company’s 401k is “top-heavy” – meaning the combined balance of key employees’ accounts makes up
60% or more of the combined balance of all employees’ 401k plans. Safe Harbor 401k plans require some sort of employer contribution.
- Multiple vesting schedules are available for Traditional 401k accounts, but owners of Safe Harbor 401k plans are either 100% vested immediately upon making a contribution,or given a two-year vesting schedule.
- Investors must establish Traditional 401k plans on or before the last day of the plan year, as long as that date occurs before the commencement of employee contributions. Safe Harbor 401k investors must establish their Safe Harbor 401k on the first day of the plan year.
The specific rules for your 401k depend on your status within the company, and IRS rules regarding 401k plans change often. If you have a Traditional or Safe Harbor 401k that you are unhappy with, it may be a good idea to visit 401kRollover.com and figure out which of your 401k rollover options makes the most sense. You can also call (800) 767-1423 to speak with a non-commissioned 401k rollover adviser.