UNITED STATES
401(k) Plan:
- a qualified retirement plan governed by Section 401 of the Internal Revenue Code
- a type of profit sharing plan
- allows employees to defer receipt of income and payment of income tax until retirement
- allows emnployer to elect to match a percentage of employee contributions on a pre-tax basis and exempt from Social Security taxes
- employees may contribute to a 457 plan as well as to a money purchase plan
- total contributions to the plan and all other profit sharing plans of an employer cannot exceed 15% of the total of all participating employees' pay
- employees can contribute as much as 20% of pay up to $9,500 (in 1997 indexed annually for inflation)
- investment can be withdrawn from the plan due to retirement, disability or termination of employment
- employees are subject to a 10% penalty tax and a 20% withholding tax generally on any lump-sum amount received prior to age 59 1/2
- employer contributions are tax deductible
- elective deferrals and the interest they earn must be 100% vested immediately
Advantages:
- generate loyalty and goodwill among employees
- a variety of investment options available to employees to select from and be able to transfer funds from one investment to another at fixed times during the year
- cost effective as no employer contribution is required
For more information, please go to the following web sites:
For information about Individual Retirement Account (IRA), please see the following web sites:
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This page is maintained by Stephen Wan. Although I will attempt to keep this information accurate, I cannot guarantee the accuracy of the information provided. Last updated: September 26, 1997.
