What are the advantages of a 401(k) Plan?

Contributions are taken from your wages pre-tax. As funds in the plan earn income and increase in value, these gains are not taxed until you spend them in retirement.

What is a Roth 401(k)?

Roth 401(k) contributions are made with dollars that have been already taxed. The gains on this money while it is in the plan are not taxed. When you spend your Roth 401(k) money in retirement you pay no taxes at all on any money you take from the plan.

What is the maximum employee 401(k) salary deferral that an employee can make?

This amount is subject to Cost of Living Adjustments (COLA) each year.  Employees reaching age 50 by the end of a calendar year can make an additional “catch-up” salary deferral for that calendar year in addition to the normal limits above.

Where can I get a Summary Plan Description (SPD)?

Your Plan Administrator can give you a copy.

I just started a new job and have money in my previous employer’s 401(k) plan. Can I bring this money into my new employer’s 401(k) plan?

Generally, yes. Your employer’s plan document may allow rollover contributions. You must satisfy the plan’s general eligibility requirements prior to being eligible to roll this money into the plan. Most plans allow rollover contributions. You can consolidate your retirement accounts into one plan and receive one benefit statement regarding this money. The rollover contribution also avoids current taxation on plan distributions because you are depositing this money into another tax-deferred vehicle.

How long do I have to roll over a retirement distribution?

A rollover must be completed by the 60^th day after you receive the distribution.  In some instances, the IRS can waive the 60 day requirement if there is a situation beyond your control.  For more information, visit the IRS website.

What is ERISA?

The Employee Retirement Income Security Act is a federal law enacted to protect participants in employer-sponsored pension and health plans.  The law sets minimum standards for conduct of plan fiduciaries; reporting and accountability to the federal government; disclosure to participants of financial and other information concerning the plan; and access to the federal courts to settle legal issues. The law has been amended many times, including those to address health insurance issues with COBRA and HIPAA laws and others to limit the number of years required before employee benefits are 100% vested.

What is Form 5500?

The 5500 is an IRS and DOL form which must be filed each year to provide statistical information about a retirement plan and plan sponsors, report financial information about the plan, and demonstrate compliance with retirement plan rules.

What is a Third party Administrator (TPA)?

A TPA is a company that administers employee benefit plans for employers.  The TPA is independent from any particular investment fund or other products or services related to employee retirement plans. The TPA’s responsibilities include design, communication, implementation and administration of retirement plans and consultation to keep the plan in compliance with Department of Labor and IRS regulations.

Why should a company adopt a qualified retirement plan?

Besides being a good way to attract and retain employees, a qualified retirement plan is one of the best tax shelters available. The company can take a deduction for its contributions to the plan; employees pay no tax on contributions until a distribution is made; earnings from investments made with funds in the plan may accumulate tax free; and distributions from the plan may be afforded favorable income tax treatment.

Must a company incorporate to have a qualified retirement plan?

No. Sole proprietorships and partnerships can have retirement plans that are comparable to corporate retirement plans.  But a plan covering a self-employed person has additional requirements in addition to the normal corporate retirement plan qualification requirements.

What are the annual reporting requirements?

Most employers who maintain a qualified retirement plan are required to file an annual report. The annual report is commonly referred to as the Form 5500. (Form 5500 or 5500-EZ) It must be filed for each plan year in which the plan has assets.