A 401(k) is used by employers looking to provide a retirement benefit for employees (and themselves). A 401(k) is flexible with the ability to create customs plans that allow for larger or smaller employer contributions as compared to only two options under a Simple IRA. Additionally, the amount employees can contribute to their retirement is larger than a Simple IRA at $18,000/year and $25,000 if over 50 years old. While many employers find the flexibility to be helpful, the costs of maintaining a 401(k) are high due to required IRS testing and the annual filing of the Form 5500 with the government.
- Any type of public or private company
- Generally most appropriate for companies with 20 or more employees
- Flexibility in plan design
- Allows employees to contribute and employer to match
- Profit sharing options
Who Can Contribute
Funded by employee deferrals and employer contributions
2016 Employer Contribution Limits
- Employers may make a matching contribution or profit sharing contribution up to 25% of compensation up to a maximum of $53,000.
- Total employer / employee contributions cannot exceed $53,000
2016 Employee Contribution Limits
Up to $18,000 in salary deferrals; $24,000 if age 50 or older
- Form 5500 and special IRS testing to ensure plan does not favor highly compensated employees
Access to Assets
- Withdrawals can be taken upon a "trigger" event such as turning age 59.5, disability, termination of employment, or plan termination.
- Loans may be available. Hardship withdrawals may be available but a 10% penalty may apply if you are under the age of 59.5
Plan Set up Deadlines
Deadlines is based upon plan selection