Retirement and Financial Planning

JUMP TO:  401(k) | TYPES OF 401(k) | 401(k) PLAN RESTRICTIONS | 403(b) PLANS

View our 401(k) Plans

401(k) plans allow employees to plan and save for retirement. After years of new IRS rulings and other governmental changes they are considered by many to be among the best options for this purpose. Considered a better option than pension plans, many employers now offer 401(k) (or a similar plan) for employees.

The benefit of a 401(k) plan extends beyond deferring taxes. They reduce your taxable income, account funds can gain interest, plans are portable (if a participant leaves their current employer the 401(k) remains accessible and may be transitioned into a future employers’ plan) and many employers contribute to employees’ 401(k)s. Unlike pension plans, if something happens to a participant’s employer (i.e. bankruptcy or closure) their funds are protected entirely from losses as a result of that event.

Although some groups cannot offer 401(k) plans, many of them are able to offer similar options. For instance state and government employees offer a 457 plan, while public hospitals, educational organizations, churches and non-profit organizations have 403(b) plans. Speak with your employer about the specific terms and differences of your plan, if any.

Types of 401(k) – There are several types of 401(k) plan an employer may choose from.

• Traditional 401(k) – Contributions are pre-tax (must pay tax at time of eligible withdrawal). Employers may contribute to the plan on the employee’s behalf, match contributions or both. There is annual nondiscrimination testing to ensure highly compensated employees are not being favored.
• Safe Harbor 401(k) – Similar to the Traditional plan, although employers must contribute to all fully vested employees’ plans. Does not have as many rules binding it – such as no requirement for annual nondiscrimination testing.SIMPLE 401(k) – Designed for small businesses. Similar to a Safe Harbor plan, but only available to businesses with fewer than 100 employees. Employees may not receive any other employer contributions with a SIMPLE 401(k) plan – such as cafeteria plan contributions.
• Roth 401(k) – The Roth 401(k) combines some of the best aspects of both a 401(k) plan and a Roth IRA. Under the Roth 401(k), employees can decide to contribute funds on a post-tax basis, in addition to, or instead of, pre-tax contributions under a traditional 401(k) plan. The difference between a Roth 401(k) and a traditional 401(k) is that the Roth version is funded with after-tax dollars while a traditional 401(k) is funded with pre-tax dollars.

401(k) Plan Restrictions – All of the plan types have specific rules that govern how they may and may not be used. Every account has an early withdrawal penalty (10% of the amount withdrawn) if funds are removed before the age of 591⁄2, unless it qualifies as one the few exceptions to that penalty. They also allow for loans, which are considered non-taxable income, but must be repaid with after-tax dollars. After turning 701⁄2 years old account holders must begin withdrawing funds or face a severe penalty of 50% the amount that should have been withdrawn (unless you are still working at the time). 

403(b) Plans

A 403(b) plan is a retirement plan allowing employees of qualified educational institutions or certain tax exempt organizations to save and invest pre-tax dollars for their own retirement. The contributions and earnings within the plan are not taxed until distributed. The participant's money is invested in financial options they choose from the approved providers under their employer's plan.