What is a 401(k) Plan?

A 401(k) plan is an employer-sponsored retirement savings plan that allows employees to divert part of their salary to a tax-deferred investment account. Salary put in the plan is not taxed until it is later withdrawn, presumably in retirement.

Employers often match part or all of the employee’s deposits. Penalties usually apply to withdrawals before age 55 if you leave your job or 59 ½ if you’re still on the job, although most plans allow employees to borrow limited amounts tax- and penalty-free from their accounts. For 2013, the limit for employees is $17,500 — plus an extra $5,500 for those age 50 and older by the end of the year. The maximum contribution limits will likely increase in the future with inflation. The same limits apply for 403(b) plans – used by public schools and non-profits, for example – and 457 plans (used by some local governments).

To learn more about a 401K plan, including adding plan options to your small business, please feel free to contact us to learn more.

Posted in , and tagged .