401(k) Plan Defined
The 401(k) plan was enacted into law in 1978 and is named after the subsection of the Internal Revenue Code where it was established. The plan is a qualified employer-sponsored plan where eligible employees can contribute and defer salary before income tax is paid. Contributions are allowed to grow tax-deferred until the money is distributed to the individual, normally at retirement. Distributions generally cannot be made (other than for specific economic conditions) until the individual reaches age 59 ½, and distributions are required to be made starting at age 70 ½. When distributions are paid to the individual, the amount of the distribution is treated as income for that particular tax year.
Employers that offer a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan.
Beginning in 2006, 401(k) and 403(b) plans may also include designated Roth IRA contributions, i.e., after-tax contributions, which will allow tax-free withdrawals if certain requirements are met. Primarily, the designated Roth contributions have to be in the plan for a least 5 taxable years.
For individual participants, we can help you manage your 401(k) Retirement Plan or help you Rollover to an IRA.
If you are an employer interested in the benefits of establishing a plan for employees - we can help.