401(k)

Type of Business

¨   Employer incurs costs for outside administration

¨   Employer wants more control and flexibility over the plan

¨   Employees funds bulk of contributions

Features and Advantages

¨   Employer option to make a matching contribution and/or discretionary profit-sharing contribution

¨   Employees make pre-tax salary deferrals

¨   Investments are employee-directed

Administration

Discrimination testing, 415 testing, top-heavy testing, and IRS 5500 reporting

Establishment

Prior to pay period in which the salary deferrals take place

Eligibility

Full-time employees age 21 and over with one year of service

Vesting

Graded or cliff schedules available

Annual Compensation Limit

$200,000

Maximum Employee Contributions

The lesser of 25% of compensation or $11,000

Maximum Employer Contributions

¨     Combined employer and employee contributions cannot exceed the lesser of 25% of compensation or $40,000

Mandatory Minimum Distributions

¨     Begin by age 70 ½

¨     Taxed as ordinary income

Distributions Before Age 59 1/2

10 % penalty in addition to ordinary income taxes for distributions (Exceptions may apply)

Distributions After Age 59 1/2

¨     Pre-tax contributions and earnings are taxed as ordinary income unless rolled over to another plan or an IRA if participant is not working

¨     If participant is still working, plan must allow for hardship withdrawals to access money

Loans

Permitted