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This is probably the most popular of plans being considered by employers. A 401(k) is a type of retirement plan that allows employees to save and invest for their own retirement. Through a 401(k), you can authorize your employer to deduct a certain amount of money from your paycheck on a pre-tax basis.

This means that by contributing to a 401(k), you can actually lower the amount you pay each pay period in current taxes. You don't owe income taxes on the money until you withdraw it from the plan, when you could be in a lower tax bracket.


Standard 401(k) Plan


Employees typically choose from 1% to 20% of salary to have deducted from their pay and then contributed to the plan. Many employers also match employee contributions. Employees typically have a degree of flexibility in selecting how their, and the company's, contributions are invested. Matching contributions can be setup on a discretionary basis.


Safe Harbor 401(k) Plan


Employer contributions are 100% vested. Companies may be able to avoid running certain annual nondiscrimination tests.

Many small companies have plans that are "top-heavy", which means that more than 60% of the plans assets are for "key" employees (generally owners and their family members). Top heavy plans must normally make a 3% minimum contribution every year to satisfy the IRS top-heavy rules. With a Safe harbor 401(k) plan design, the 3%, fully vested, safe harbor contribution will allow a plan to avoid the annual non-discrimination

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