401(k) Retirement Plans

Today, the most often used corporate retirement plans are the 401(k) plans. StateTrust offers advice as to the several 401(k) options.  A 401(k) plan is an employer sponsored plan that allows employees to defer taxes on their contributions. The plan permits the employee to contribute a portion of his/her salary before taxes. These contributions are deducted directly by the company.  The majority of 401(k)  plans feature a company matched contribution whereby employers add specified amounts to employee contributions and receive certain tax advantages.

The structuring of a 401(k) plan may require:

  • A legal document establishing the terms and conditions by the employer.
  • The designation of one or more trustees.
  • A plan administrator.
  • Filing of the 5500 tax form on a yearly basis by the employer.
  • Establishing specific investment criteria for the plan participants.

Characteristics of a 401(k) plan:

  • Employee contributions are automatically vested, and are limited to $16,500 a year as of 2011.
  • Employees 50 years of age and older have a catch-up provision.
  • Employer contributions typically have a vested schedule whereby employees must remain with the employer for a specified period of time.
  • The total contribution including the employer portion is limited to the lesser of $49,000 or the employees’ compensation. (as of 2011)
  • The plan structure must be non-discriminatory, in particular to the compensation level. 
  • Typically allows for loans/withdrawals due to hardships .
  • Distribution rules are similar to other qualified retirement plans.

Common 401(k) Retirement plans include:

Traditional 401(k) planAutomatic Enrollment 401(k)
Safe HarbourSIMPLE 401(k) plan

Retirement & Education Accounts