Different Types of 401K Plan For Retirement Savings
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Employer-sponsored 401K plans offer retirement benefits to the employees of any big or small corporation. With a 401K plan, employees can invest a portion of their salary in their retirement account. They also get various tax benefits and deferrals here. However, it is imperative to know the different types of 401K plans and how they can affect your future retirement savings. The different 401K options include traditional, simple, safe harbor, and roth 401K plans. In today's post, we will discuss all these 401K options in detail.
At Brokerage Specialists in Grand Island, we can help you understand and analyze your 401K option for better retirement planning. We strive to provide our clients with an in-depth report of their company's 401K plan and how it works. If you're interested, contact us to schedule a meet!
Traditional 401k Plan
The traditional 401K plan is the most common one amongst employees for retirement savings. In this type of plan, you may have to contribute some amount of your income to the 401K pre-tax.
A traditional 401K plan offers tax deferral to both you and your employer. It may allows up to $19,500 deferral in 2021. The amount may vary each year. One major drawback here is the minimum age of withdrawal. You need to be at least 59 ½ to withdraw.
Simple 401k Plan
Employers have to pass nondiscrimination tests like Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) for a traditional plan. But, they can apply for a Simple 401K plan without applying for or passing these tests.
In a Simple 401K plan, you can contribute only up to $13,500 (pre-tax) in 2021. You are ineligible to receive contributions for other employee-sponsored retirement plans if you are under a simple 401k plan.
Safe Harbor 401K Plan
The Safe Harbor 401K plan is similar to both Traditional and Simple 401K plans. The employer doesn’t have to pass the ADP and ACP tests similar to Simple 401K plans.
In Safe Harbor, the tax deferral is up to $19,500 which is the same as Traditional 401K plans. It’s also necessary for an employer to contribute to your 401K plan in a Safe Harbor option.
Roth 401K Plan
The Roth 401K plan is a modified Traditional 401K plan. The major difference here is that this plan is post-tax. The taxes are first deducted from your wage and the contribution takes place from the leftover amount.
The Roth 401K plan offers benefits during the time of withdrawal. You need not pay any extra tax even if there is an increase in the tax percentage. This offers future security.
These are the four main 401K plan options that employers opt these days. If you require more financial control and social security retirement benefits. you may also consider shifting to personal retirement plans or IRA.
We, at Brokerage Specialists offer consultation on your 401K options. We can help you analyze and customize your 401K retirement saving plans to yield maximum benefits.
Call now or email us to get a free consultation on 401K options.