40l(k) PLAN:

A 40I(k) plan is the most widely known type of retirement plan. It helps promote financial security and reduces the dependency solely on social security benefits for retirement. It is administratively cost effective for the employer and helps employees save for their financial future. This plan helps employees save a portion of their salary up to the dollar limits and an additional catch-up amount for employees over the age of 50. The 40I(k) contribution limits are set by the Internal Revenue Service (IRS) annually.

Employees can elect to contribute before-tax or after-tax. “The pre-tax dollars are tax deferred until withdrawal. The adjusted gross income (ACI) is reduced by the amount deposited into the 40I(k), which helps reduce the taxable income, and, consequently, reduces the tax liability for individuals. Under this plan, the employees have the flexibility to invest as aggressively as desired to maximize savings. However, at the time of withdrawal, the benefits are taxable and subject to penalties before the age of 59

Employees also have the option to make contributions to a Roth 40I(k) with after-tax dollars. “the taxable income in this case is not impacted. “The limits for Roth contributions are similar to pre-tax contributions. While contributions to a Roth 40I(k) do not provide an immediate tax advantage, at the time of withdrawal the principal plus the earnings are tax free. Additionally, unlike pre-tax contributions, Roth contributions do not have required minimum distributions during the account holder’s lifetime. Similar to traditional 40I(k), employees under the age of 59 ½ are subject to the early withdrawal penalties