A 401k Plan is a very popular employer sponsored retirement savings program. These plans are designed for employers wishing to provide employees with the ability to fund their own retirement accounts on a pre-tax or Roth after-tax basis.
Employees can elect to defer up to $22,500 into the plan. Employee contributions may be made pre-tax or Roth after-tax and are always fully vested.
Employees age 50 and over can make a special catch-up contribution of $7,500 during 2023.
Employer Matching Contributions
Employers can choose to match employee contributions. Many employers match at a rate of 25%, 50%, or even 100% of the amount the employee contributes. Employers receive a tax deduction for matching contributions.
Employer Profit Sharing Contributions
Employers can also elect to make discretionary profit sharing contributions. These contributions can be in addition to Employer Matching Contributions but are generally not required. Please see our Profit Sharing Plans fact sheet for more information about how these contributions might be appropriate in your plan.
401k Plans permit many types of investments, including mutual funds and other investments offered through your financial advisor.
Safe Harbor 401k Plans
One drawback of a traditional 401k Plan is that they are subject to non-discrimination testing that may limit the amount that can be contributed by owners and Highly Compensated Employees. Safe Harbor 401k Plans provide an alternative to traditional 401k plans and permit business owners and Highly Compensated Employees to contribute larger amounts than might be possible in a traditional 401k Plan. For more information on this plan type, please see our Safe Harbor 401k fact sheet or speak to a JULY plan consultant.