Plan description

A 401(k) is a qualified plan that allows for employee pretax contributions. The value of a 401(k) investment grows tax deferred until withdrawn, when it's taxed as ordinary income.

Key features

• Permits pretax salary deferral contributions.
• Designated Roth contributions offer tax-free earnings growth for all investors and tax-free distributions for those 59 1/2 or older or who meet the specified criteria.
• Employer contributions are tax deductible.
• Employer matching and profit sharing contributions are optional.
• Vesting schedule can be applied to employer contributions.
• Participant loans are available.
• Withdrawals are governed by the plan document and may be restricted.¹

Who can establish

Businesses, partnerships, S-corporations², C-corporations² and nonprofit groups (no governmentals).

Annual contributions

Please see Retirement Plan Limits for the current compensation and contribution limits for this plan.

Annual fees

Due to complicated discrimination testing and tax reporting, third-party administrative services are required.

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¹ Amounts withdrawn from retirement plans are generally includable as taxable income in the year received and may be subject to tax penalties if withdrawn prior to 59 1/2.

² S-corporations and C-corporations are two different types of legal structures, each of which is subject to different tax rules.

This information does not constitute tax advice. Please consult your tax advisor about your particular situation.