401(k) Plan, Choosing a Retirement Plan
Nowadays it seems like every employer has a 401(k) plan. Have you ever considered to get one yourself but simply had no idea how it works? It’s ok. The government will help you understand and make a right decision.
Employees having a 401(k) plan are free to choose to defer some amount of their salary. This way, instead of receiving that part in their paycheck, they delay, or defer, receiving that money. The agreed amount is going into a 401(k) plan which their employer sponsors (that would be you). In addition, the deferred money usually doesn’t get taxed by the federal government and by most state governments until the moment it gets distributed.
So, if employers establish a 401(k) plan, they:
- can be a business of any size;
- are free to have other retirement plans;
- will have to annually file a Form 5500.
Actually, employers can make a plan as simple or as complex as they want to. Meanwhile, a pre-approved 401(k) plan might be what you want here, if you are looking for a way to cut down on administrative headaches and expenses.
- the best plan if cash flow is an issue;
- provides greater flexibility in contributions;
- the employees are able to contribute more to 401(k) plan than under IRA plans;
- employees are more flexible with optional participant loans and hardship withdrawals the plan offers.
- employers may bear higher administrative expenses than under basic arrangements;
- another administrative burden is additional withdrawal and loan flexibility;
- employers will also need to make sure that benefits do not discriminate in favor of their highly compensated employees. Such testing may become complicated.
The plan may include employer contributions and employee salary deferrals, if you wish. In any case, employees will always be completely vested in their salary deferrals, while your contributions may be vested gradually. The contribution limit is $16,500 for the employee in 2011. The employees over 50 are allowed an additional “catch-up”
The employers will be required to file Form 5500 annually. The plan permits participant loans and in-service withdrawals that may be subject to possible 10% additional tax for employees under age 59-1/2.
Resource - http://new401kcontributionlimits.com/