business, whether a C Corporation, S Corporation, partnership, sole
proprietorship, self-employed can establish Plan.
company sets the eligibility requirements, within certain
guidelines, at the time the plan is established.
they wish, the employer can restrict individuals with less than 1
year service, union members, non US citizens, part-time workers
etc., from being eligible for the plan.
to plan can come from voluntary employee salary reduction or from
employer, or both.
individual employee can defer up to 100% of their pre-tax income
into the plan up to a maximum of $11000 per year ($12000 if over age
50). Owners, officers and highly compensated employees contribution
is relegated to a percent multiple of the average contribution level
of the other employees.
may have some obligation to contribute if plan is deemed top heavy.
are immediately 100% vested with their own salary reduction tax
deferred contributions, and when , as and if they leave their
company employ they can roll the account in their own individual
personal IRA's, or perhaps to a new company's 401K. (Withdrawal
before age 59 1/2 may be subject to 10% penalty.)
can establish a vesting schedule, within certain guidelines, for the
contribution the company(s) make to their employee's retirement
are not required nor obligated to make any contribution to their
employees retirement accounts.
of the contributions to the plan can come strictly by individually
elected salary deferral; however, if the employer voluntarily at
their sole discretion elects to contribute for any one employee then
they must put in the same percent of income for all employees,
regardless of whether the employee contributes to the plan.
contributions (employee and employer) cannot exceed $40,000, $41,000
if over age 50.
Safe Harbor 401K plans are available which require the employer to
offer contribution matching up to certain limits. This matching is
then required for the employees who elect to be participants in
plan. If so, contribution restriction limits for owners, officers
and highly compensate is eliminated.
Starting in 2002, a 401k plan is available which is designed
exclusively for various types of businesses and sole proprietors
having owners only with no other employees that work for more than
1000 hours per year, excluding spouses. Full contribution limits are
available for participants in these plans.
deductions payments to the plan can only come directly from company.
has full ERISA requirements and annual IRS 5500's series of filings.
plans usually are best for larger companies because of the costs
associated with documentation, cost associated with setting up plan
and cost associated with administering the plan.
outside third party administrators are hired to oversee the
requirements of the plan, top high testing and the like.
Plans can be add-ons to Profit Sharing, Defined Benefit Plans.
choices generally range from 8 to 37 mutual funds, or variable
401K plans offer very limited investment funding choices, couple
with infrequent opportunity to switch investment choices within
plan; others offer a wide range of investment choice within plan,
with totally flexibility to switch investments within the plan
401K plans permit participant directed individual stock
transactions, and some permit company stock purchase within the
401K mutual fund, variable annuity companies offer credits to new
accounts to offset expenses associated with 401K account transfers
from one mutual fund, variable annuity company to another.
plans permit direct loan, hardship loan, disability loan provisions.
can start, stop contribution during course of year, as determined by
are subject to top heavy testing and discrimination testing.
Plans can be switched from one mutual fund to another mutual fund
company or to a variable annuity, or visa versa.
some cases, 401K Plans can be terminated and other more efficacious
and cost effective plans can be instituted.
most 401K plans can offer a wide range of investment choices within
mutual funds and variable annuities, since in many cases these
mutual funds and variable annuities have "investment only
features" allowing them to simply act as "another"
investment choice for an existing plan.
mutual fund and variable annuities are available for these plans.
OF 401K PLAN ROLLOVERS
deductible contribution, tax deferred growth and taxable distribution)
401K and other retirement plans from prior employers is a common
individuals become aware of the advantages associated with enhanced
performance, better and more complete investment choices,
unrestricted and cost free exchanges between funds and perhaps even
a death benefit to heirs the decision to move frequently makes good
individuals currently employed cannot move their 401K plan
participating to another carrier or an IRA; however, some major
companies do permit active 401K participants to roll to IRAs.
when one leaves the employ of a company, one has the option to roll
their 401K pension plans into the new company's plans, if available,
or into a personal IRA or a Rollover IRA.
the choice is made to roll into an IRA because of the flexibility
and vast array of individual choices available
in an IRA, the participant is therefore not relegated to the
investment choices offered by the company or not-for-profit
organization, nor, is the participant subject to any potential
future restrictions imposed by the new employer, if any.
in an IRA, the participant is permitted to move the plan for
whatever reason to other investments within his/her IRA as desired.
plans can be readily rolled from mutual funds to variable annuities
or from variable annuities to mutual funds. Or from one mutual fund
complex to another fund, or from one annuity to another. Sales
charges might or might not apply.
are a number of considerations regarding these rollovers and proper
selection of the proper mutual fund or variable annuity funding
family is of importance.