Home > Retirement Plans > Plan Types > 401(k)

401(k) Profit Sharing Plan

A 401(k) profit sharing plan allows employees to defer a portion of their income (tax deferred) to the plan while also allowing the employer to fund a matching and/or discretionary contribution. The salary deferrals are always 100 percent vested. They are limited to the lesser of 100 percent of the employee’s compensation or the current year’s dollar limit. Participants age 50 or older may make an additional “catch-up” deferral. These thresholds are adjusted annually for cost-of-living increases.

A matching contribution may be included based on the salary deferrals. The matching allocation formula varies according to the employer’s funding objectives and may be discretionary.

Reasons to adopt a 401(k) Profit Sharing Plan for your business:

Employees contribute for their own retirement
Tax-deductible employer contributions
Flexible annual employer contributions
Federal (and most state) income taxes are deferred until distribution
Employer does not bear the entire retirement funding burden
Employees typically direct salary deferral investments
Vesting schedule available

Considerations when adopting a 401(k) Profit Sharing Plan:

Highly compensated employees’ deferrals may be limited
401(k) plans must satisfy nondiscrimination testing
Retirement benefits are impacted by investment returns

Lafayette Life Insurance Company provides services to pension plans as outlined in a separate Administrative Services Agreement, and issues life insurance and annuity products that may be used as funding options. Lafayette Life does not serve as plan administrator, nor does Lafayette Life or its representatives provide ERISA, legal or tax advice. The client’s personal or legal tax advisors should always be consulted and relied upon for advice.