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Traditional 401(k)
Traditional 401(k) plans have become one of the most popular employee benefits offered today. Corporations, Sub-Chapter S, Self-employed, Sole Proprietorships, Partnerships and Non-Profits may establish plans.
401(k) plans can be designed and tailored to fit individual company needs – eligibility, vesting, contribution flexibility, participant loans and various distribution options. Many companies offer these plans as a way to attract and retain employees.
401(k) plans allow employees to make pre-tax salary deferral to help save for their own retirement and shelter some of their income from current income taxes. Employers can elect to make tax-deductible contributions on behalf of employees in the form of a matching and/or discretionary profit sharing contribution. The limits on 401(k) pre-tax deferral have been increased to $13,000 for 2004 and will increase by $1,000 per year in 2005 and 2006. In addition, if the participant is over age 50, or will attain age 50 during 2005, a catch-up contribution of $4,000 may also be made.
401(k) plans are subject to a variety of nondiscrimination testing requirements, as required under the IRS, including minimum coverage, ADP/ACP, top heavy and general nondiscrimination.
Plans must be established by fiscal year-end (December 31 for calendar year plan). Deferrals are not permitted until the plan is established. |
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