Are All 401K Plans Created Equal?
Equally beneficial, separately defined and perfectly designed. Discover the types of 401K plans offered to find the best fit for any goal and budget.
Having a 401K plan is very beneficial for your future and retirement. There are several different kinds of 401K plans, but all except for one type are funded with pre-tax dollars. This means that the contribution is placed into the plan and the whole amount earns interest, not to mention that the monthly household taxable income decreases. The only plan that does not follow this pattern is the 401K Roth, which taxes the contributions when they go in but are not assessed when withdrawn.
What Are The 401K Plan Types:
Traditional 401K Plans:
In Traditional 401K plans eligible employees may elect to have payroll deductions for a certain amount, up to a certain percentage, to use for funding. The employer will then match that amount for a certain amount, but not exceeding a specified percentage. These are pre-tax dollars, so the benefit is having the entire amount invested accumulating the interest. This plan must undergo non-descrimination tests and must also provide that an employee can become completely vested, or when the employee’s right to employer contributions becomes non-forfeitable, after a specified number of years.
Safe Harbor 401K Plans:
The Safe Harbor 401K plan is the same as a Traditional 401K plan, except for contribution status. When contributions are made they are considered fully vested from the beginning. They are also not subject to the non-descrimination testing that Traditional 401K plans must participate.
SIMPLE 401K Plans:
These 401K plans were designed with small businesses in mind. There is no non-descrimination testing and the contributions are fully vested. These plans are for employers that have 100 or less employees, and such employees must have received at least $5000 in employer compensation for the preceding year.
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