401(k) Plans
401(k) plans are the most popular retirement plan available today. According to the
IRS, 401(k)s "can be a powerful tool in promoting financial security in retirement
and are a valuable option for businesses considering a retirement plan, providing
benefits to employees and their employers." In a 401(k) plan, employees may elect
to defer some of their salary. This means that, as opposed to receiving that amount
in their paycheck, the employee delays getting that money. In a 401(k), the employee's
deferred money goes into a 401(k) plan sponsored by their employer. This deferred
money generally does not get taxed by the Federal government or by most state governments
until it is distributed.
An employer can make a 401(k) plan as simple or as complex as desired. Employees
are always 100% vested in their salary deferrals. Employer contributions may be
vested on a graduated vesting schedule. The IRS imposes certain contribution limits
on 401(k) plans. The employee limit in 2009 and 2010 is $16,500. If the employee is age 50
or above, the IRS permits what's called a "catch-up" contribution, which a contribution
in excess of the cap. In 2009 and 2010, the "catch-up" limit is $5,500.
This Web site is intended for general information purposes only. It does not nor is it intended to constitute legal, tax or investment advice. Alliance America is not a lawyer, registered investment advisor or investment advisor representative, and is not engaged in the practice of law or the business of investment advice.