401K Defined Contribution Plans
A 401(k) is the most common kind of defined contribution retirement plan.
Here’s how it works: You and your employees decide how much you want to contribute, and your employer puts the money into your individual account on your behalf.
The investment happens through payroll deduction: Your employee’s decide what percentage of your salary the individual would like to contribute and, from then on, that amount comes straight out of your paycheck and goes into your account automatically, without you having to lift a finger. The employee’s paycheck will be smaller as a result – though not as small as you might think, thanks to the tax benefits involved.
Other types of 401K Plans
Owner Only 401K Plan
Safe Harbor 401K Plan
An owner-only 401(k) plan is designed for self-employed individuals with no additional employees excepting a spouse.
A ‘Safe Harbor’ plan is a common 401(k) retirement plan for businesses with multiple employees. Safe Harbor plans ease the process for business owners to maximize contributions to their own individual accounts while minimizing some of the limitations associated with adhering to IRS non-discrimination testing.