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) plan | Automatic Enrollment 401(k) |
| Safe Harbour | SIMPLE 401(k) plan |
Retirement & Education Accounts