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401(k) Plans
401(k) Plan
A 401(k) plan allows employees to contribute a portion of their pre-tax salary to a tax-deferred retirement plan. Some companies provide a matching contribution as an extra incentive for the participants to contribute. Generally an employee must leave the money in the 401k plan until they leave the company. Some companies provide "In-Service Distributions", which allows employees to distribute money from their 401k plans for certain hardships or if they reach the age of 59–1/2. Matching contributions from the employer may be subject to a vesting schedule. Many companies are now offering ROTH 401(k) plans, which allow employees to make after tax contributions to the plan and like a ROTH IRA, the growth of these after tax contributions are exempt from income tax (subject to certain IRS rules and age limits). Matching contributions to a ROTH 401(k), from an employer, are typically still made on a pre-tax basis. Companies should consult a tax professional before establishing a company sponsored retirement plan such as a 401(k). These plans have many rules and administrative requirements and a professional should be consulted in the establishment of these plans.
Individual 401(k) Plan
Self-Employed individuals and owner-only (and the owner's spouse) businesses and partnerships can save more for retirement through a 401(k) plan. A Self-Employed or Individual 401(k) allows self employed owners to take advantage of this increased retirement and tax savings opportunity with a full range of investment options. These 401(k) plans allow the self employed to contribute a portion of their pretax salary to the Individual 401(k). Business owners should consult a tax professional before establishing a company sponsored retirement plan such as an Individual 401(k). These plans have many rules and administrative requirements and a professional should be consulted in the establishment of these plans.
403(b) Plan
A 403(b) is a tax-favored retirement plan for employees of school systems, nonprofit hospitals, religious organizations and other tax-exempt employers [known as 501(c)(3) organizations]. Participants can make pre-tax contributions and some organizations match these contributions. Similar to a 401(k) plan, participant pre-tax contributions are 100% immediately vested, but matching contributions may be subjected to a vesting schedule. Companies should consult a tax professional before establishing a company sponsored retirement plan such as a 403(b). These plans have many rules and administrative requirements and a professional should be consulted in the establishment of these plans.
Click here to compare contributions limits allowed on various employer sponsored retirement plans.
