• Cash or Deferred 401(k) Plans
• Nontraditional Defined Contribution Plan
• Safe Harbor 401(k) Plan

• Traditional Defined Benefit Plan
• Traditional Profit Sharing Plan
• Qualified Plan Participant Loans

Any profit sharing or stock bonus plan that meets certain participation requirements of IRC Sec. 401(k) can be a cash or deferred plan. An employee can agree to a salary reduction or to defer a bonus which he or she has coming. Tax-exempt entities may also adopt a 401(k) plan.

How it Works:

• Employee has the option of taking cash or having it paid to the trust for retirement. This is equivalent to an employee tax-deductible contribution. However, employee deferrals are subject to FICA and FUTA payroll taxes, with applicable payments from both the employer and employee.
• Any additional employer contributions are tax deductible.
  
• Employer contributions, if any, are not taxed currently to the employee.
  
• Earnings accumulate income tax-deferred.
  
• Distributions are generally taxed as ordinary income. Distributions may be eligible for 10-year income averaging1, or, at retirement from the current employer, rolled over to a Traditional or a Roth IRA2 or to another employer plan if that plan will accept such a rollover. Beginning in 2007, federal law allows retirement distributions to employees who are at least age 62 even if they have not separated from employment at the time distributions begin.
  

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The basics:

These plans are different from traditional money purchase pension and profit sharing plans in that they define different participant groups who will receive different levels of employer contributions. They must comply with very detailed and complicated regulations under IRC Sec. 401(a)(4). They are typically called either cross-tested, tiered or super-integrated money purchase pension or profit sharing plans.

How it Works:

• Employer contributions are tax deductible.
  
• Contributions are not taxed currently to the employee.
  
• Earnings accumulate income tax-deferred.
  
• Distributions are generally taxed as ordinary income. Distributions may be eligible for 10-year income averaging1, or, at retirement from the current employer, rolled over to a Traditional or a Roth IRA2 or to another employer plan if that plan will accept such a rollover. Beginning in 2007, federal law allows retirement distributions to employees who are at least age 62 even if they have not separated from employment at the time distributions begin.
  

For more information: Click here for the PDF

Introduction:

In general, the Internal Revenue Code (IRC) requires all qualified employer plans to meet certain nondiscrimination requirements. Employer plans established under IRC Sec. 401(k) are subject to one or two additional tests. The first test, applicable to employee deferrals only, is known as the “actual deferral percentage” (ADP) test. The second possible test is the “actual contribution percentage” (ACP) test and is applied only when there are employer-matching contributions.

The Small Business Job Protection Act of 1996 provided 401(k) plans with alternative, simplified methods of meeting these additional nondiscrimination requirements. 401(k) plans that adopt one of these alternative methods are referred to as “safe harbor” 401(k) plans. A safe harbor plan is very similar to a non-safe harbor plan. The primary difference is how a safe harbor plan satisfies the IRC’s additional nondiscrimination requirements.

Beginning in 2008, the Pension Protection Act of 2006 added a separate safe harbor 401(k) plan for plans that use automatic enrollment.

For more information: Click here for the PDF

The basics:

Employer contributes an actuarially determined amount sufficient to pay each participant a fixed or defined benefit at his or her retirement.

How it Works:

• Employer contributes an actuarially determined amount each year to the plan.
  
• Employer contributions are tax deductible.
  
• Contributions are not taxed currently to the employee.
  
• Earnings accumulate income tax-deferred.
  
• Distributions are generally taxed as ordinary income. Distributions may be eligible for 10-year income averaging1, or, at retirement from the current employer, rolled over to a Traditional or a Roth IRA2 or to another employer plan if that plan will accept such a rollover. Beginning in 2007, federal law allows retirement distributions to employees who are at least age 62 even if they have not separated from employment at the time distributions begin.
  

For more information: Click here for the PDF

The basics:

Employer contributions to the plan need not be a specific percentage and they need not be made every year, as long as they are “recurring and substantial.”1 Profits are not required in order to make a contribution.

How it Works:

• Employer contributions are tax deductible.
  
• Contributions are not taxed currently to the employee.
  
• Earnings accumulate income tax-deferred.
  
• Distributions are generally taxed as ordinary income. Distributions may be eligible for 10-year income averaging2, or, at retirement from the current employer, rolled over to a Traditional or a Roth IRA3, or to another employer plan if that plan will accept such a rollover. Beginning in 2007, federal law allows retirement distributions to employees who are at least age 62 even if they have not separated from employment at the time distributions begin.
  

For more information: Click here for the PDF

For more information: Click here for the PDF