Many 401(k) profit sharing plans still use a trust, who may also be the administrator, to oversee the assets in the plan. The purpose of the trust is to handle the managerial aspects of the plan. The trust has a fiduciary responsibility to act in the best interests of the participants.
Many 401(k) profit sharing plans still use a trust, who may also be the administrator, to oversee the assets in the plan.
The purpose of the trust is to handle the managerial aspects of the plan.
The trust has a fiduciary responsibility to act in the best interests of the participants.
401(k) Profit Sharing Plan and Trust FAQs
A 401(k) Profit Sharing Plan and Trust is an employer-sponsored retirement savings plan that allows employees to save pre-tax money from their salaries for retirement. The employer can also choose to match employee contributions, add discretionary profit-sharing contributions, or both.
Employees who are age 21 or older, have worked for the company for at least one year, and are not part of a collective bargaining agreement may be eligible to contribute to the plan. Additionally, employers must provide equal participation rights regardless of job classification or length of service.
Employees can contribute pre-tax money from their salary to the plan, and the employer may choose to match contributions or add discretionary profit-sharing contributions. These funds are invested and grow tax-deferred until withdrawal at retirement age (59 ½). Withdrawals before that age are subject to income taxes and a 10% penalty.
The primary benefit of this type of plan is that it allows employees to save for retirement in a tax-advantaged way. Additionally, employers who offer a matching contribution program can attract and retain employees, and any employer contributions are tax-deductible.
Yes, distributions from a 401(K) Profit Sharing Plan and Trust before age 59 ½ may be subject to income taxes and a 10% penalty. Additionally, plan participants may be required to take minimum distributions once they reach the age of 70 ½.
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.
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