employees to make pre-tax deferrals through payroll deductions. The employer has the option of making contributions on the behalf of all employees or making matched contributions based on the elective deferrals of employees or both. The contributions of the employer can be controlled by a vesting schedule which stipulates that after a certain period of time these contributions become nonforfeitable to the employee or become immediately vested. The contributions of the employer must meet certain non-discriminating criteria which prevents higher contribution to those making higher salaries.
The Safe Harbor 401(k) is the same as the traditional 401(k) but provides the stipulation that all employer contributed funds must be fully vested. Those employer contributed funds may match those deferred by employees through payroll deduction or may be made by the employer for all employees. This plan does not require the non-discrimination regulations that pertain to the traditional 401(k) plan. However, the company must provide an annual notice which details the employees rights and obligations under the Safe Harbor 401(k) plan.
The SIMPLE 401(k) plan was developed so small businesses could have a means to effectively provide a retirement plan when they had 100 or fewer employees. As with the safe harbor 401(k) the employer must make contributions that are fully vested. It is available to employees who have been compensated at least $5,000 in wages the previous tax year. Employees enrolled in this investment plan may not be enrolled in any other retirement plan of the employer.
These are just a few of the available plans which use the principle of tax deferral. New for 2006 is the Roth deferral wherein the employee can allocate a portion of their tax deferred contribution to a Roth 401(k).
Article Source: http://articlecrazy.com
Gray Rollins is a featured writer for EasyTaxSupport.com. To learn more about taxes, visit the site and check out articles about IRS red flags and audit protection services.
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