Plan Types Defined
401(k) Plans – A 401(k) plan is a qualified profit sharing plan that allows participants an opportunity to elect a high level of pre-taxed (before income tax is paid) salary deferrals to grow tax-deferred until the money is withdrawn. Nondiscrimination testing is required, and a vesting schedule is normally applied to any employer contribution.
Safe Harbor 401(k) – is a 401(k) plan designed with a mandatory employer contribution in exchange for avoiding the annual nondiscrimination testing requirements. Most of these employer contributions are always 100% vested.
Roth 401(k) – is a 401(k) plan that designates a separate account to which participant after-tax contributions and earnings are held. These contributions are included in determining the maximum allowable employee contribution limitations. Withdrawals are not taxed provided they are held for at least 5 years and meet specific withdrawal events.
Simple 401(k) – is a 401(k) plan available to employers with 100 or fewer employees who received as least $5,000 in compensation in the preceding year. Employer contributions are required each year and are always 100% vested. This type of plan is not subject to the nondiscrimination testing. This plan can not be combined with any other qualified plan.
Individual (k) – is a profit sharing plan combined with a 401(k) plan that can be implemented only by self-employed individuals or small business owners who have no other full-time employees (with the exception of a full-time spouse).
Profit Sharing– is a defined contribution plan that offers employers both discretion and design flexibility regarding contributions. Contributions to the plan are invested and accumulate tax free until the occurrence of a specified event (e.g., disability, death, retirement, or termination of employment).
Salary Ratio PS – a profit sharing plan that allocates employer contributions among the eligible participants in the proportion that the compensation of each eligible participant bears to the aggregate compensation of all the eligible participants.
Integrated PS – a profit sharing plan that integrates the plan’s allocation formula based upon the social security taxable wage base. All eligible participants earning less than the specified taxable wage base receive a base pro rata allocation and an additional allocation is allowed for those eligible participants earning above the taxable wage base.
New Comparability PS– is a profit sharing plan in which the eligible participants are divided into different non-discriminatory classifications for purposes of allocating contributions. Once non-discrimination testing is passed, this type of plan allows a larger share of employer contributions to be made on behalf of a group of participants the employer wishes to provide more significant benefits.
Money Purchase – is a defined contribution plan in which the employer’s contributions are mandatory and are usually based solely on each participant’s compensation. Retirement benefits are based on the amount in the participant’s account at the time of retirement.
403(b) ERISA Plans – is a tax-advantaged retirement savings plan available for public education organizations, 501(c)(3) organizations, cooperative hospital service organizations and self-employed ministers. As in a 401(k) plan, employee salary deferrals are made before income tax is paid and allowed to grow tax-deferred until the money is withdrawn.
Cash Balance 401(k) Combo Plans – The Cash Balance design is added to increase contributions after reaching the limits of a 401(k) Profit Sharing Plan. This Plan combines the high contribution limits of a traditional defined benefit plan with the flexibility and portability of a 401(k). These plans are recommended for business owners with high consistent income looking to contribute large amounts of money for retirement and who are willing to accommodate required contributions for several years.