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401(k) Plans A 401(k) plan is a defined contribution plan that allows pre-tax employee contributions. Employers can choose to match an employee's contribution to the 401(k) plan. Employees who participate in 401(k) plans assume responsibility for their retirement income by contributing part of their salary and, in many instances, by directing their own investments. The annual individual savings deferral is limited by law to $16,500 for 2009. For individuals age 50 and older, an additional catch-up contribution of $5,500 is allowed in 2009.
Safe Harbor 401(k) Plans Safe Harbor 401(k) Plans are like traditional 401(k) plans, but require fully vested safe harbor contributions from the employers. Safe Harbor 401(k) Plans are not required to have the same nondiscrimination testing, making it a popular plan among small companies. The annual individual savings deferral is limited by law to $16,500 for 2009. For individuals age 50 and older, an additional catch-up contribution of $5,500 is allowed in 2009.
SIMPLE 401(k) Plan SIMPLE 401(k) Plans are for companies that have 100 or fewer employees. Similar to other 401(k) Plans, employees can chose to defer some of their compensation. The employer is required to provide either a matching contribution up to 3% of each employee's pay or a non-elective contribution of 2% of each eligible employee's pay. The annual individual savings deferral is limited by law to $11,500 for 2005. For individuals age 50 and older, an additional catch-up contribution of $2,500 is allowed in 2009.
Single Participant 401(k) Plan A Single Participant 401(k) plan is available to self-employed individuals or business owners with no employees other than their spouse. It is a defined contribution plan established and maintained by an employer. The annual deferral contribution limit for employees is $16,500 in 2009. The employer can also contribute up to 25% of eligible compensation; therefore, the combined contribution from employer and employee can be 100% of compensation or $49,000, whichever is less. The employer contributions are a deductible business expense.
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