401k Plans

(employer sponsored retirement plan or "401(k)")

Beacon Capital Management Advisors has built an excellent reputation providing 401k retirement plan solutions to companies across the United States. Our corporate clients benefit from our objectivity. We have no proprietary products and offer over one hundred different 401k plan providers. Learn more here.

What are corporate 401k plans?

A 401k is a retirement plan that is sponsored by an employer and allows employees and employers to make pre-tax contributions for their retirement. 401k plans have become tremendously popular and plan providers have improved dramatically over the last few years and now offer many more services such as increased investment selection, reduced administrative costs and efficient administration.

401k Contributions and Withdrawals

A 401k participant can elect to defer up to 100% of their W-2 compensation up to a maximum of $16,500 in 2009 and 2010. 401k participants that will become age 50 or older during the calendar year January 1-December 31 and are making the maximum contribution are permitted to make an additional "catch-up" contribution. In 2009 and 2010 the maximum annual catch-up contribution is $5,500. As a result, those age 50 or older can contribute $22,000. Employee contributions are 100% tax deductible and dividends and investment earnings grow tax-deferred until they are withdrawn.

In general, withdrawals from a 401k before age 59 1/2 incur a 10% IRS penalty and are taxed as income. After age 59 1/2 an employee can withdraw the money without penalty, but will pay income taxes. This is advantageous for many investors because they are able to make a contribution to their retirement plan and receive a tax deduction during their working years while in a higher tax bracket, get many years of growth in dividends and investment earnings without being taxed, and when retired and typically in a lower tax bracket, they withdraw the money as needed.

401k Loans

Some 401k plans have a loan provision which allows employees to take a loan. Tax free loans (up to 50% of the total 401k value with a $50,000 maximum) are permitted. Loans must be repaid according to the terms of the loan amortization schedule which is provided when a loan is initiated. Failure to repay the loan according to these terms may result in a loan default causing income taxes as well as IRS penalties.

Generally the total loan balance is due within a short time period (60 or 90 days) upon voluntary or involuntary termination of service with an employer. If the full remaining balance of the loan can't be repaid at that time, then the loan is considered defaulted which may cause taxes and IRS penalties.

401k Company Match Options

Employers are not required to make contributions on behalf of employees in a 401k plan. Although not required, many employers do make contributions called a "company match." A common employer match is a 1 for 2 match up to a maximum of 3%. For example, if an employee contributed 6% of their salary an employer would contribute 3% for the employee.

Frequently, there would be a vesting schedule on the company match. When there is a vesting schedule an employee would need to work for an employer for a specified time period or else they may receive none or only a fraction of the company match. Of course, employee contributions do not have a vesting schedule and are immediately 100% vested. A company match can reward loyal employees and frequently improves employee retention and helps to attract new employees. Learn more about how an employee benefits from a 401k. 

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Disclosures:

*  The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

* Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.