Different Types of 401k Plans

Different Types of 401 Plans

By Congruent Solutions

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The 401k retirement plans have become an integral part of business, where employees can leverage the benefits of the plan to manage their future better. In a small business, it is essential to equip the internal systems with agile retirement withdrawal software. It helps the business to monitor retirement benefits effectively.

Whatever plan the business decides to choose for its employees, it is imperative to implement retirement and pension management software to stay ahead of the contributions.

Congruent offers one of the best retirement payroll solutions for small businesses.

The 401(k) plan enables the employees to choose their retirement contributions while the employer contributes a certain amount of money on their behalf. The 401(k) plan protects the interests of the employees and provides tax © 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

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benefits for the employers. The main benefit of this plan is that the employees have the freedom to choose their level of contribution. If the employer contributes 8% of the total pay, the employee can match it by 50% or even more, thereby saving in bulk.

Let’s look at the different types of 401(k) plans available. The plans include:

● Traditional 401(k) plans ● Safe harbor 401(k) plans ● SIMPLE 401(k) plans ● Solo 401(k) plans ● Roth 401(k) plans

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As an employer, you can choose the 401(k) plan that works best for you. The newly joined employees in a company must serve the probationary period before opting for a retirement plan.

● Traditional 401(k) plans

The traditional 401(k) plan is the most common one that’s chosen by small businesses. In this type of plan, the social security, and Medicare benefits are taxed before the 401 dedications are made. When choosing this plan, the employer must conduct a non-discrimination test to ensure that all eligible employees are compensated as per the norm.

● Safe harbor 401(k) plans

If you choose the safe harbor plan, you needn’t have to conduct the non-discrimination test. This plan can be availed by

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businesses of all sizes and must provide employees retirement benefits irrespective of their job, title, length of service, etc.

● SIMPLE 401(k) plans

The simple 401(k) plan is ideal for small businesses with lesser than 100 employees. This plan is a simplified version of the traditional 401(k) plan, where the contributions are non-forfeitable. Employees who opt for this plan cannot participate in other retirement plans offered by the company.

● Solo 401(k) plans

As the name suggests, solo 401(k) plans are specifically designed for individual contributors. This plan is usually used by solo business owners with no employees apart from their spouses and business partners.

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● Roth 401(k) plans

The Roth 401(k) plan is similar to the traditional plan plus Roth IRA. However, in this plan, the users deal with post-tax deductions. Employees who opt for the Roth 401(k) plans can deduct their savings post-retirement without incurring extra taxes.

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