401(k) plans for businesses are by far the most common type of 401(k) plan in use today. Although labor unions and professional organizations can also use this type of plan, they are found primarily with private employers. The rules and regulations for these plans are the same as for any other type of 401(k) plan. The employer has the power to determine features such as matching contributions, the vesting schedule, loan provisions and plan eligibility. There can also be a profit-sharing element added to the plan at the employer's discretion.
401(k) plans are used by most businesses to attract and retain quality employees as well as to add an asset to the business's balance sheet. Self-employed businesses can sponsor a self-employed 401(k) plan, where the sole proprietor can make contributions both as an employee and the employer. Employers that do not want the administrative responsibility of sponsoring and administering a qualified 401(k) plan can use a SIMPLE 401(k) plan instead, which is a much simpler type of plan. This type of plan does not have the same strict record-keeping and nondiscrimination requirements that come with all traditional plans.Self-Employed 401(k) Plan
SIMPLE 401(k) Plan
401(k) Plans For Businesses FAQs
A 401(k) plan is an employer-sponsored retirement savings account that allows employees to set aside pre-tax money from their salary in order to save for the future.
401(k) plans for businesses are by far the most common type of 401(k) plan in use today. The rules and regulations for these plans are the same as for any other type of 401(k) plan.
The maximum amount that you can contribute to your 401(k) plan each year is $19,000 (or $25,000 if you are age 50 or over).
Yes, the funds from your 401(k) must be used for qualified retirement expenses such as medical bills and certain educational expenses.
Yes, contributions to your 401(k) are made with pre-tax money, so you can save on taxes now and pay fewer taxes when you start withdrawing the funds during retirement.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.