# The safe harbor 401(k) match

> The basic safe harbor match and the 3% nonelective contribution, worked on a Northwind salary.

Source: https://lopifi.com/learn/startup-retirement-plans-401k-simple-ira/safe-harbor-401k-match
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

---

**How does a safe harbor 401(k) match work?** The basic safe harbor match and the 3% nonelective contribution, worked on a Northwind salary.

A [safe harbor 401(k)](https://lopifi.com/md/glossary/safe-harbor-401-k) meets the nondiscrimination rule for [elective deferrals](https://lopifi.com/md/glossary/elective-deferral) by formula instead of by test. The employer makes one of two fully vested contributions for every eligible non-highly compensated employee: the basic match, with a written notice before the year, or a 3% nonelective contribution whether or not they defer.

> “100 percent of the elective contributions of the employee to the extent such elective contributions do not exceed 3 percent of the employee ’s compensation , and (II) 50 percent of the elective contributions of the employee to the extent that such elective contributions exceed 3 percent but do not exceed 5 percent of the employee ’s compensation”

— [IRC §401(k)(12)(B)–(C)](https://www.law.cornell.edu/uscode/text/26/401), The safe harbor 401(k): the basic match and the 3% nonelective contribution

| Employee defers | Deferral | Match | Match as % of pay |
| --- | --- | --- | --- |
| 2% | 1,200 | 1,200 | 2% |
| 5% | 3,000 | 2,400 | 4% |

The basic match on $60,000 of pay.

**Scenario — Working the basic match.** $60,000 of pay, 5% deferred: 100% of the first 3% of pay and 50% of the next 2% is $2,400. Deferring only 2% gets $1,200. The match never exceeds 4% of pay, so budget the plan at 4% of the payroll of everyone who defers at least 5%.

> **The books.** The employee's deferral is withheld into a liability, like the premium; the match is the employer's own expense, credited to a 401(k) payable until the money reaches the plan. The [payroll entries guide](https://lopifi.com/md/startups/payroll-journal-entries) has the lines.

## Where this page's rules come from

- [IRC §401(k)(12)(B)–(C)](https://www.law.cornell.edu/uscode/text/26/401) — The safe harbor 401(k): the basic match and the 3% nonelective contribution (statute)
- [IRS — 401(k) plan overview](https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-overview) — Traditional, safe harbor and SIMPLE 401(k) plans (irs)
- [Wikipedia, “401(k)”](https://en.wikipedia.org/wiki/401(k)) — 401(k) (reference)

- **Track:** [Health & benefits](https://lopifi.com/md/learn/benefits)
- **Part of:** [Retirement plans: 401(k), safe harbor and SIMPLE IRA](https://lopifi.com/md/learn/startup-retirement-plans-401k-simple-ira) — 6 min
- **Terms taught:** [Safe harbor 401(k)](https://lopifi.com/md/glossary/safe-harbor-401-k), [Elective deferral](https://lopifi.com/md/glossary/elective-deferral), [401(k) plan](https://lopifi.com/md/glossary/401-k-plan)
- **Previous:** [Retirement plans: 401(k), safe harbor and SIMPLE IRA](https://lopifi.com/md/learn/startup-retirement-plans-401k-simple-ira)
- **Next:** [SIMPLE IRA](https://lopifi.com/md/learn/startup-retirement-plans-401k-simple-ira/simple-ira-for-small-business)
- **The course:** https://lopifi.com/md/learn