A Safe Harbor 401k plan is a type of 401k plan with added benefits for the individual. The main difference of the safe harbor 401k plan is that it allows for individuals to contribute towards the retirement plan from their own salaries. The employers can contribute matching amounts to the plan for the employees. The contributions that are made from the employer are subject to tax while the contributions that are made by the individual are exempt from federal and income tax rules.
When is one eligible for the Safe Harbor 401k plan?
To be eligible for this retirement plan, the employee must be employed in a sole proprietorship firm, partnership or a limited liability corporation. Also, the employee must be at least 21 years of age and should have worked in the firm for at least 1,000 hours or 1 year in the year of hire. One of the benefits that are offered from this plan is that the employer has the option to remove the restrictions on the employees but does not have the authority to enforce any more restrictions on the employee. This is one of the best 401k investment plans that are available in the United States.
Advantages of the Safe Harbor 401k Plan
As with all other retirement plans that are available, this plan has similar benefits. The primary benefit that is offered by any of the retirement plans is the tax benefit. The tax benefit that is offered is that the contributions to the plan are not taxable and the fund in the retirement account grows tax deferred. Although employer contributions are taxable, the employer enjoys a 25% compensation of the contributions of all eligible participants. The contributions that are made from the employee do not attract any federal or income tax.
Another option that is available in the Safe harbor 401k plan is the option of a 401k hardship withdrawal. Although the employer or the provider is not required by law to offer the option of a hardship withdrawal, the option exists. A hardship withdrawal entitles an individual to make withdrawals from the investment account before the assigned period of time.
Cashing out 401k is a relatively simple process. The rules for the withdrawal from the safe harbor 401k plan is that the individual must reach the age of 59 ½ before making any withdrawals. If any withdrawals are made from the plan before that time, the withdrawals will be subject to tax and they would attract a penalty as well. However, if the plan allows for a hardship withdrawal, in that case the penalty may not be exercised if the withdrawal is made according to the requirements.
Once the individual reaches the age of 70 ½, the individual must begin making distributions regularly. The amount of the minimum distribution depends on the age of the individual and the amount of fund that is present in the account of the individual. Before applying for any 401k plans, it may be wise to seek 401k advice. This advice may help you in finding the best investment plans available.Safe Harbor 401k,