401(k) Plans Overview
|
A 401(k) Plan allows employees to elect to defer a portion of their compensation for retirement. The portion contributed to the plan can be on a pre-tax basis, meaning the employee only pays taxes on their deferral contributions and earnings at the time their funds are withdrawn from the plan. Some plans also allow employees to make Roth 401(k) contributions, in which case the employee pays taxes on the contributions before they are deposited into the plan, but if a qualified withdrawal is made, both the contributions and earnings are withdrawn tax free.
These plans may also contain a discretionary matching option, where the employer elects to contribute a portion of what the employee has elected to defer. 401(k) Plans are subject to various IRS non-discrimination rules. |
Who May Adopt?
Employers of all sizes.
Employee Eligibility Requirements
Maximum requirements: Age 21 and 1 year (1,000 hours) of service. Less restrictive requirements are allowed.
Employee Deferral Contributions
Please see retirement plan limits.
Employer Matching Contributions
Any discretionary formula is allowed. Plans may provide that employees must be employed on the last day of the plan year and must work up to 1,000 hours to receive a contribution.
Employer Profit Sharing Contributions
Discretionary formulas allowed based on either non-integrated (comp-to-comp) formula or integrated (social security wage base) formula. Plans may also provide that employees must be employed on the last day of the plan year and must work up to 1,000 hours to receive a contribution.
Maximum Annual Contributions
Employer contributions are limited to 25% of participant wages. Employee annual additions are limited to the lesser of 100% of compensation or the annual limit stipulated by the IRS (see retirement plan limits).
Are Catch-up Contributions Allowed?
Yes, please see retirement plan limits.
Contribution Deadlines
Employee deferral contributions must be deposited by the 15th business day following the month of deferral, or sooner if administratively feasible - the DOL has indicated that contributions made within 7 days will not be considered late. Employer contributions must be made by the employer’s tax filing deadline, including extensions.
Vesting Schedule
Employee deferral contributions are always 100% vested. Employer contributions may be subject to a vesting schedule. Examples of possible vesting schedules include a three (3) year cliff (0,0,100) or a six (6) year graded (0,20,40,60,80,100).
Withdrawals and Loans
Withdrawals permitted only upon termination, death, disability or retirement. Plans may elect to allow hardship or in-service withdrawals. Plans may elect to allow plan loans and must specify the parameters under which a participant can take a loan.
Administration & Reporting Requirements
Top-heavy and non-discrimination testing required. Form 5500 filing required. Fidelity Bond required.
Employers of all sizes.
Employee Eligibility Requirements
Maximum requirements: Age 21 and 1 year (1,000 hours) of service. Less restrictive requirements are allowed.
Employee Deferral Contributions
Please see retirement plan limits.
Employer Matching Contributions
Any discretionary formula is allowed. Plans may provide that employees must be employed on the last day of the plan year and must work up to 1,000 hours to receive a contribution.
Employer Profit Sharing Contributions
Discretionary formulas allowed based on either non-integrated (comp-to-comp) formula or integrated (social security wage base) formula. Plans may also provide that employees must be employed on the last day of the plan year and must work up to 1,000 hours to receive a contribution.
Maximum Annual Contributions
Employer contributions are limited to 25% of participant wages. Employee annual additions are limited to the lesser of 100% of compensation or the annual limit stipulated by the IRS (see retirement plan limits).
Are Catch-up Contributions Allowed?
Yes, please see retirement plan limits.
Contribution Deadlines
Employee deferral contributions must be deposited by the 15th business day following the month of deferral, or sooner if administratively feasible - the DOL has indicated that contributions made within 7 days will not be considered late. Employer contributions must be made by the employer’s tax filing deadline, including extensions.
Vesting Schedule
Employee deferral contributions are always 100% vested. Employer contributions may be subject to a vesting schedule. Examples of possible vesting schedules include a three (3) year cliff (0,0,100) or a six (6) year graded (0,20,40,60,80,100).
Withdrawals and Loans
Withdrawals permitted only upon termination, death, disability or retirement. Plans may elect to allow hardship or in-service withdrawals. Plans may elect to allow plan loans and must specify the parameters under which a participant can take a loan.
Administration & Reporting Requirements
Top-heavy and non-discrimination testing required. Form 5500 filing required. Fidelity Bond required.