401(k) & Retirement Plans

401(k) Plans & Executive Benefits

Preparing for that next step in life, for attractive custom executive benefits and successful 401(k) plans isn’t always easy. Bret Ables, with 28 years experience, can help explain your options, prepare strategies while keeping it simple.

Now, have questions? Let’s get together to discuss your financial goals and future! Come meet with us in person at one of our two office locations, or give us a call at (903) 401.5191 to discuss how we can best help you!

401(k) Plans Explained

What is a 401(k) Plan?

A 401(k) plan is an employer-sponsored defined-contribution pension account defined in subsection 401(k) of the Internal Revenue Code. Employee funding comes directly off their paycheck and may be matched by the employer.  

Does the Employer Contribute?

The sponsoring employer may or may not contribute to the plan.

Frequently, the employer obligates the company to a “matching” contribution. For example, the employer may match an employee’s contribution dollar-for-dollar; may promise to match employee contributions at $0.50 on the dollar, etc.

Employers may also make additional discretionary contributions over and above the match. In 2020, the employer and employee contributions, when combined, may not exceed $57,000 ($63,500 with the “catch-up”).

• Have you determined which type of 401(k) plan best suits your business?
• Have you decided whether to make contributions to the plan, and, if so, whether to make non-elective and/or matching contributions? (Remember, you may design your plan so that you may change your rate of contributions if necessary due to business conditions.)
• Have you decided to hire a financial institution or retirement plan professional to help with setting up and running the plan?
• Have you adopted a written plan that includes the features you want to offer, such as whether participants will direct the investment of their accounts?
• Have you notified eligible employees and provided them with information to help in their decision-making?
• Have you arranged a trust fund for the plan assets or will you set up the plan solely with insurance contracts?
• Have you developed a record keeping system?
• Are you familiar with the fiduciary responsibilities?
• Are you prepared to monitor the plan’s service providers?
• Are you familiar with the reporting and disclosure requirements of a 401(k) plan?

A safe harbor 401(k) plan is similar to a traditional 401(k) plan, but, among other things, must provide for employer contributions that are fully vested when made. However, the safe harbor 401(k) is not subject to many of the complex tax rules that are associated with a traditional 401(k) plan, including annual non-discrimination testing.

Both the traditional and safe harbor plans are for employers of any size and can be combined with other retirement plans.

Safe Harbor 401(k) Plan – Under a safe-harbor plan, you can match each eligible employee’s contribution, dollar for dollar, up to 3 percent of the employee’s compensation, and 50 cents on the dollar for the employee’s contribution that exceeds 3 percent, but not 5 percent, of the employee’s compensation. Alternatively, you can make a non-elective contribution equal to 3 percent of an employee’s compensation to each eligible employee’s account. Each year you must make either the matching contribution or the non-elective contribution.

Who is Eligible for the Plan?

Typically, a plan benefits a mix of rank-and-file employees and owner/managers. However, some employees may be excluded from a 401(k) plan if they:

• Are covered by a collective bargaining agreement that does not provide for participation in the plan, if retirement benefits were the subject of good faith bargaining.
• Have not attained age 21
• Have not completed a year of service Employees cannot be excluded from a plan merely because they are older workers.

What is a Roth 401(K) Plan?

• The ROTH 401(k) is an optional feature. It does not require a new document; however, one may amend an existing document.
• Employees at ANY income level can participate and their contributions are made on an after-tax basis.
• One advantage of the ROTH feature in 401(k) plans is qualified distributions come out income tax free if taken 5 years from first deposit, attainment of age 59 1⁄2, or due to death or disability.
• ROTH 401(k) employer contributions are matched on a pre-tax basis and are therefore subject to income tax on withdrawal.
• When employees terminate they may roll over their ROTH 401(k) account to a ROTH IRA.
• For those 50 and over the catch-up contribution may go to the ROTH 401(k) account.
• Contributions to the 401(k) account can be all ROTH or part ROTH and part traditional.
• ROTH and traditional deposits are all included in ADP testing.
• ROTH 401(k) deposits can be made regardless of one’s income level, unlike IRA limitations.