401(k) Plans

A 401(k) plan allows employees to contribute a portion of their pretax salary to a tax-deferred retirement plan. Some plans may offer a Roth option, in which case employees’ Roth contributions are taxed upfront; these contributions grow tax-deferred and are tax and penalty free when taken in a qualified withdrawal.

• Some companies provide a matching contribution as an extra incentive for the participants to contribute.
• In-service distributions for certain hardships can be allowed.
• Participant deferrals do not count toward the deductible limits.
• Matching contributions may be subjected to a vesting schedule. Both participant and employer-matching contributions are subject to discrimination testing.
• Employer contributions and match (if any) are deductible business expenses.

If you’re self-employed, a Solo 401(k) is an option. It offers many of the same advantages of a 401(k), including flexible contributions and the ability to take loans. Plus, setup costs are low and it can cover you and a spouse.

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