Employees can save with pre-tax contributions through salary reduction agreements, up to $18,500 for 2018 ($24,500 if over age 50).
A 401(k) plan is a qualified profit sharing plan that includes a provision giving participating employees the option to defer part of their wages into the plan trust on a pre-tax or post-tax basis. In addition, the plan may contain an employer matching and/or profit sharing provision.
When should you consider a 401(k) plan?
401(k) plans are a great choice for employers who want to provide retirement benefits for employees but can’t afford to contribute much (or any) employer contributions on the employees’ behalf. The name recognition and relatively low cost of a 401(k) plan make it a useful tool for attracting and retaining qualified employees.
What do employees like about 401(k) plans?
Employees like 401(k) plans because they offer them a choice on how much they want to save. Employees also enjoy tax-deferred savings and tax-deferred investment growth.
When would you need more than a 401(k) plan?
For owners that are closer to retirement, 401(k) plans may not be enough. Contributions to 401(k) plans for any individual, even when coupled with an employer matching contribution and/or profit sharing contribution, are generally limited to $55,000 ($61,000 for those at age 50 and over) for the 2018 calendar year.
Additionally, since the benefit at retirement is dependent on the investment performance of the account, there is a chance that the benefit level at retirement is less than expected.
If this is the case, please contact one of our Pension Consultants, or complete our online Proposal Request Form, to determine what other plan design options are available. Your Pension Consultant can guide you to a plan that fits your idea of retirement.
401(k) Plan Executive Summary