A 401(k) plan is a profit sharing plan with a 401(k)
attachment. The 401(k) attachment allows participants
to defer money out of their paychecks into the plan. The
employee’s deferrals are tax deferred allowing for
a tax savings in the current year. The deferrals are segregated
to a participant’s account and grow tax deferred
until retirement.
The employer may also make a contribution to the participant’s
account. This contribution can be in the form of a profit
sharing contribution or a match. A match is a contribution
from the employer equal to a pre defined percentage of
the employee deferral.
401(k) have become the most popular form of employer
sponsored qualified retirement plan. Two key reasons for
this is the ability of an employee to save money themselves
and save immediate taxes at the same time as well as an
employer’s ability to add contributions for employees
on a very flexible basis.
401(k) plans can be combined with any other type of qualified
plan to help design the ideal plan for your company.
