| |
401(k) Salary Deferral Plans
With a 401(k) plan, employees choose to have a percentage of their pay deposited
into a plan account each pay period before income taxes are withheld. Contributions
and the earnings on those contributions won't be taxed until the employee begins
making withdrawals. The tax law (adjusted annually to reflect inflation) limits
employee contributions.
Using the investment choices offered by their plan, employees decide where and how
they want to invest their plan contributions. You can make matching
contributions - on part of or on all of your employees' contributions - if you wish.
Employer Benefits
- Your business can currently deduct contributions of employee salary
deferrals and matching contributions to the plan, if all the requirements
of the tax law are met
- Owner-employees can participate in the plan
- 401(k) plans can be more cost effective and easier to maintain than traditional pension plans
- A 401(k) salary deferral plan can help your company attract and retain valued employees
Employee Benefits
- Employees do not have to pay current income taxes on the amounts they defer
- Plan earnings grow tax-deferred
- Employees choose how they want to invest their plan account money
Combined 401(k)/Profit-Sharing Plan
You can establish both a 401(k) and profit-sharing plan for employees. Or, if you
already have a 401(k) plan, adding a profit-sharing feature is fairly simple. A
combined plan must include all eligible employees, including those who do not
participate in the 401(k) plan. However, the amount an employer may deduct for
profit-sharing contributions is limited to 15% of the compensation paid to
participating employees during the year.
Employer Benefits
- The addition of a profit-sharing component to an existing 401(k) plan
also may allow for higher plan contributions than a 401(k) plan alone
- Participating in the profit-sharing plan may make employees more aware
of retirement planning and may prompt them to contribute to their 401(k) plan
- It can assist the employer in meeting the pension law's testing requirements
by encouraging higher levels of participation in the plan
Employee Benefits
- Employees do not have to pay current income taxes on the amounts they defer
- Plan earnings grow tax-deferred
- Employees choose how they want to invest their plan account money
- Employer contributions are not taxed to employees while they participate in the plan
- All earnings in employees' profit-sharing plan accounts grow tax deferred
- Employees pay taxes only when they begin receiving distributions from the plan.
By then, they may be in a lower tax bracket
|
