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VA Buyers srill get a $8000 rebate!
What are 401 (k) plans
What are 401 (k) Plans? 401(k) plans are a feature of Profit Sharing Plan which permit employees to defer income from their pay and contribute that amount to a separate account for their retirement benefit. The employee always "owns" or is vested 100% of the amount contributed from their pay. Employers may match employee contributions on a dollar or percentage basis. For example: An employer may match 25% of every dollar that the employee contributes up to 8% that the employee contributes. So an employee who defers 8% of their pay will also receive an additional 2% from the employer. Generally there are vesting schedules for employer matching contributions, which permit the employee to "own" a certain percentage of the match over a period of time, but no longer than 6 years. The matching contribution is generally considered part of a profit sharing contribution for plan purposes. 401(k) contributions are considered separately for percentage calculations in Profit Sharing Plans, permitting the employee contribution not to be counted against the employer contribution 25% limitation. The employee deferral amount is however included as part of the $40,000 maximum contribution amount. This is a distinct benefit for owner only plans, where income does not reach the dollar limitations ($160,000) and one wishes to make the highest contribution possible. In addition, Since 2006, 401(k) contributions have been eligible to be made on a post tax basis, and be placed into a tax free account, similar to a Roth IRA.
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