Understanding how 401K plans work and which one to choose means doing research. With various plans available for retirement, finding the one that suits you begins with recognizing how each one differs from the next and whether these differences mean anything for you. Below are brief descriptions of different plans for retirement ranging from small business plans, traditional to individual plans and more.
A traditional plan offered by most employers allows them to make matching or non-elective contributions to a plan on their employees behalf. Earnings accrue on a tax deferred basis and contributions are taken out from post-tax or pre-tax income. The traditional plan may differ according to the company offering it so be sure to read the guidelines and rules for your plan before you make a choice to invest.
The Tiered Profit Sharing 401K
Designed for small businesses with less than 50 employers and high profits, this plan remunerates employees based on unique groups within the company. This profit sharing plan rewards employees based on certain roles and quality performances. Also known as the advanced profit sharing plan, it is perfect for small business owners to consider when choosing a plan for employees. With tax free loans available, reduction from taxable business profits for contributions, this affordable plan has a lot to offer.
The individual plan was created for business owners with one employee, yourself. Similar to the traditional plan except made for one employee companies, the individual plan is also available in Roth versions. Money is put into your account on a pre-tax basis and it grows tax-deferred. Starting a new one person business? This plan is a perfect investment for individual business owners.
Unlike common traditional plans, the Roth plan is an employer sponsored account with after tax monies. This plan has no income limitations and anyone is allowed to invest up to the contribution limit into their plan. With a Roth plan also unlike a traditional plan, the money you contribute including income comes out tax free after retirement. This plan has furthermore, become a popular choice amongst employees in many fields where employers offer it.
Whichever one you choose, remember to check out your options. These 401K plan are only a few of growing options. Consider which one works for you today and for your future.
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