The 401k Employee Retirement Plan

The 401k is one of the most popular and traditional forms of employee retirement plans. It is also one of the easiest to administer.

Employees benefit from more flexibility in the size of their contributions and their options for investments when they are enrolled in a 401k plan. Participants can invest up to the maximum amount each year. This maximum increases incrementally every year. After the age of 50, participants can catch up with their investments by making an additional contribution. In 2009, for example, it was possible for a participant to invest up to 16,500 dollars in a 401k. Participants over 50 could invest an additional amount up to 5500 dollars.
Participants do not pay tax on their 401k until they begin to make withdrawals. They can do so, without incurring a penalty, once they reach the age of 59 and a half. In some cases, a 401k plan may offer participants the chance to withdraw funds before this age as a loan or in case of hardship.

Employers can choose to match their employee’s contributions into a 401k. This can be an important factor in attracting and retaining employees. It is possible to rollover the 401k plan of a new employee from their previous employer. Setting up a 401k plan and offering matched contributions will allow you to take advantage of certain tax credits.

Matching 401k contributions will usually cost approximately one percent of your total payroll. It is possible either to match each individual’s contributions up to a maximum of 6 percent of the total compensation, or to match the contributions of every employee by the same fixed amount. The employee’s own contributions are always 100 percent vested, but the matched contributions are not.
A vesting schedule can be established for the matched contributions into the 401k. You can either set a number of years after which 100 percent of the ownership will be transferred to the employee, or set a percentage of the matching funds that will be transferred for each year that they are in your employment.
It is possible for a small business to successfully run a 401k plan, despite the common belief that such plans can only work when there are at least 100 employees. Different 401k plans are available for businesses of different sizes, administrative needs, budgets and investment goals. The modular nature of the plans are particularly suitable for growing businesses since participants can easily be added or removed.

Universities, hospitals and other non-profit organizations can offer employees a 403b plan rather than a 401k. The main difference between these plans is that 403b participants cannot make investments in individual stocks. Instead, their funds are invested into custodial accounts that hold mutual funds or into the annuity contracts of an insurance company. The 403b also offers participants the chance to invest an additional 3000 dollars a year for up to five years after they have been employed for 15 years.

Related posts:

1. Introduction to Employee Retirement Plans

Posted in general

Tags: , 401k contributions, 401k plan, age, amount, Auto, chance, Draft, employee retirement, employer, half, hardship, individual, matching funds, payroll, percent, plan participants, retaining employees, Retirement, retirement plan, tax credits, withdrawals