Saving for retirement
401(k) plans offer an easy, tax-advantaged way for employees to save for retirement by allowing them to defer a portion of their compensation. The money is deducted from the employee’s paycheck and will not be taxed until it is removed from the 401(k) plan, which is typically at retirement. 401(k) plans often have a matching option, which means the employer will match a portion of the employee’s deferred income with a company contribution. The match may be fixed or discretionary.
A 401(k) plan can also be an employer discretionary contribution, which is allocated based on the employee’s compensation. Unlike an employer-provided match contribution, an employer discretionary contribution does not require employees to defer any of their compensation for retirement. Instead, they simply need to meet the eligibility and entry requirements for the plan. Because this employer contribution is discretionary, it can change from year to year.
For additional information on 401(k) Plans, contact us!