401k

Highlights

  • Individual account plan
  • 401k is a variation of a profit sharing plan in which a participant elects to defer a portion of his compensation. The portion deferred into the plan is not currently subject to federal income tax.
  • A participant may elect to defer 100% of compensation up to a maximum amount determined annually by the IRS – $18,000 in 2015.
  • Participants age 50 and over can make a $6,000 “catch-up” contribution.
  • Employee deferrals are 100% vested at all times.
  • The employer may also make a separate “matching” contribution. This contribution is a percentage of the employee’s deferral.
  • Cash or deferred arrangements are subject to a special non-discrimination test, which compares the amount of contributions made to the plan on behalf of the highly compensated employees versus the non-highly compensated employees.
401k savings are deducted before income taxes…
No Plan 401 (K) Plan
Earnings $1,666 $1,666
To 401(k) (pre-tax) $0 $100
Taxes $273 $245
FICA $119 $119
Savings (After-Tax) $100 $0
IN YOUR POCKET $1,174 $1,202
Immediate Tax Savings with 401(K) on every paycheck
TAX SAVINGS EACH PAYCHECK $28
TAX SAVINGS PER YEAR (26 Pay Periods/Year) $728

Investment yields

$100 per month investment (Assumes interest between 8% and 11.5%)