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Traditional 401K Plans
A traditional 401(k) plan is a qualified employer
sponsored plan under which employees can elect
to contribute a portion of their wages to a
retirement plan on a pretax and/or after tax
basis up to a maximum allowed by law. Pretax
contributions are commonly referred to as
“Elective Deferrals”. After tax contributions are
referred to as “Roth Deferrals” and were initially
eligible to be a part of a 401(k) plan in 2006.
Wages that are deferred on a pretax basis are
not subject to federal income tax withholding at
the time of deferral and the earnings
accumulate tax free until the date distributed
from the plan. The IRS will tax these benefits as
part of the employee’s regular income only when
the assets are distributed from the plan, typically
after a participant retires or terminates
employment. Whether withdrawals are made
during a participant’s employment or while still
employed, depends on the terms of the plan.
Earnings on contributions made on an after tax
basis are never taxed. Once either of these types
of deferrals is contributed to a plan, they are
immediately 100% vested.
Employer contributions can also be made and
are usually in the form of matching and/or profit
sharing. There are rules relating to these types of
plans which require the contributions made
under the plan to meet specific nondiscrimination
requirements. In order to ensure that the plan
satisfies these requirements, certain annual tests,
known as the ADP and ACP discrimination tests
must be performed to verify that deferred wages
and employer matching contributions do not
discriminate in favor of highly compensated
employees.
A profit sharing feature may be added to the
plan document as well. Vesting schedules and
end of year requirements can be applied to these
employer contributions.
In general, a 401(k) plan is a low-cost solution for
an employer to be able to provide retirement
benefits to employees. There are many
advantages to this type of plan for both the
employer and employee and the employer should
carefully consider their options before deciding
which type of 401(k) plan to establish.
sponsored plan under which employees can elect
to contribute a portion of their wages to a
retirement plan on a pretax and/or after tax
basis up to a maximum allowed by law. Pretax
contributions are commonly referred to as
“Elective Deferrals”. After tax contributions are
referred to as “Roth Deferrals” and were initially
eligible to be a part of a 401(k) plan in 2006.
Wages that are deferred on a pretax basis are
not subject to federal income tax withholding at
the time of deferral and the earnings
accumulate tax free until the date distributed
from the plan. The IRS will tax these benefits as
part of the employee’s regular income only when
the assets are distributed from the plan, typically
after a participant retires or terminates
employment. Whether withdrawals are made
during a participant’s employment or while still
employed, depends on the terms of the plan.
Earnings on contributions made on an after tax
basis are never taxed. Once either of these types
of deferrals is contributed to a plan, they are
immediately 100% vested.
Employer contributions can also be made and
are usually in the form of matching and/or profit
sharing. There are rules relating to these types of
plans which require the contributions made
under the plan to meet specific nondiscrimination
requirements. In order to ensure that the plan
satisfies these requirements, certain annual tests,
known as the ADP and ACP discrimination tests
must be performed to verify that deferred wages
and employer matching contributions do not
discriminate in favor of highly compensated
employees.
A profit sharing feature may be added to the
plan document as well. Vesting schedules and
end of year requirements can be applied to these
employer contributions.
In general, a 401(k) plan is a low-cost solution for
an employer to be able to provide retirement
benefits to employees. There are many
advantages to this type of plan for both the
employer and employee and the employer should
carefully consider their options before deciding
which type of 401(k) plan to establish.
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| Benefit Plans Services Inc., offers retirement plans, 401k Plans, 403b Plans, Age-Weighted Plans, Davis bacon Plans, Money Purchase Plans, New Comparabillity Plans, Profit Sharing Plan, Safe Harbor 401k Plans, SEP Plans, Simple 401k Plans, Thrid Party 401k We are a third party retirement plan provider located in Huntington WV, throughout the Tri-State Valley, We are a full service benefits consulting firm providing a wide range of retirement services in ARIZONA, AZ, ARKANSAS, AR, CALIFORNIA, CA, COLORADO, CO, CONNECTICUT, CT, DELAWARE, DE, DISTRICT OF COLUMBIA, DC, FLORIDA, FL, GEORGIA, GA, HAWAII, HI, IDAHO, ID, ILLINOIS, IL, INDIANA, IN, IOWA, IA, KANSAS, KS, KENTUCKY, KY, LOUISIANA, LA, MAINE, ME, MARYLAND, MD, MASSACHUSETTS, MA, MICHIGAN, MI, MINNESOTA, MN, MISSISSIPPI, MS, MISSOURI, MO, MONTANA, MT, NEBRASKA, NE, NEVADA, NV, NEW HAMPSHIRE, NH, NEW JERSEY, NJ, NEW MEXICO, NM, NEW YORK, NY, NORTH CAROLINA, NC, NORTH DAKOTA, ND, OHIO, OH, OKLAHOMA, OK, OREGON, OR, PENNSYLVANIA, PA, PUERTO RICO, PR, RHODE ISLAND, RI, SOUTH CAROLINA, SC, SOUTH DAKOTA, SD, TENNESSEE, TN, TEXAS, TX, UTAH, UT, VERMONT, VT, VIRGIN ISLANDS, VI, VIRGINIA, VA, WASHINGTON, WA, WEST VIRGINIA, WV, WISCONSIN, WI and WYOMING, WY. We serve the communities of Ashland, Russell, Greenup Paintsville, Louisa, Prestonsburg, Pikevile, Chesapeake, Proctorville, Ironton, South Point, Portsmouth, Gallipolis, Jackson, Coal Grove, Rockhill, Huntington, Barboursville, Milton, Ona, Hamlin, West Hamlin, Branchland, Ranger, Winfield, Teays Valley, Lesage, Apple Grove, Logan, Williamson, Kermit, Cross Lanes, Winfield, Dunbar, St. Albans, Ravenswood, Parkersburg, Point Pleasant, Kenvoa, Ceredo, Wayne, Lavalette, Charleston, Cross Lanes, Beckley, Buffalo, Morgantown, Clarksburg and the Tri-State |