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  • Any business, whether a C Corporation, S Corporation, partnership, sole proprietorship, self-employed can establish Plan.

  • The company sets the eligibility requirements, within certain guidelines, at the time the plan is established.

  • If 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.

  • Contributions to plan can come from voluntary employee salary reduction or from employer, or both.

  • Each 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.

  • Employer may have some obligation to contribute if plan is deemed top heavy.

  • Employees 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.)

  • Employer's can establish a vesting schedule, within certain guidelines, for the contribution the company(s) make to their employee's retirement accounts.

  • Employers are not required nor obligated to make any contribution to their employees retirement accounts.

  • 100% 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.

  • Total contributions (employee and employer) cannot exceed $40,000, $41,000 if over age 50.

  • NOTE: 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.

  • NOTE: 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.

  • Salary deductions payments to the plan can only come directly from company.

  • Plan has full ERISA requirements and annual IRS 5500's series of filings.

  • These 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.

  • Generally, outside third party administrators are hired to oversee the requirements of the plan, top high testing and the like.

  • 401K Plans can be add-ons to Profit Sharing, Defined Benefit Plans.

  • Turnkey plans available.

  • Investment choices generally range from 8 to 37 mutual funds, or variable annuities.

  • Some 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 investment choices.

  • Some 401K plans permit participant directed individual stock transactions, and some permit company stock purchase within the plan.

  • Some 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.

  • Some plans permit direct loan, hardship loan, disability loan provisions.

  • Participants can start, stop contribution during course of year, as determined by the company.

  • Plans are subject to top heavy testing and discrimination testing.

  • 401k Plans can be switched from one mutual fund to another mutual fund company or to a variable annuity, or visa versa.

  • In some cases, 401K Plans can be terminated and other more efficacious and cost effective plans can be instituted.

  • Effectively, 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.

  • Numerous mutual fund and variable annuities are available for these plans.


(Tax deductible contribution, tax deferred growth and taxable distribution)

  • Moving 401K and other retirement plans from prior employers is a common ongoing occurrence.

  • Once 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 economic sense.

  • Generally, 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.

  • Generally, 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.

  • Frequently, the choice is made to roll into an IRA because of the flexibility and vast array of individual choices available

  • Once 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.

  • Once in an IRA, the participant is permitted to move the plan for whatever reason to other investments within his/her IRA as desired.

  • Retirement 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.

  • There are a number of considerations regarding these rollovers and proper selection of the proper mutual fund or variable annuity funding family is of importance.



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Copyright 2001 Kaplan Management & Insurance Services
Last modified: June 13, 2012