Frequently Asked Questions
Pension Plan Limits
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Frequently Asked Questions
Click on a question below to link to the answer. We will be constantly updating these so if your question isn't answered,
ask us directly.
Q: Why establish a Retirement Plan?
Q: What are the advantages in implementing a "qualified plan" vs. a "non-qualified
plan"?
Q: What is a 401(k) Plan?
Q: What is a Roth (k)?
Q: What are the advantages of a 401(k) Plan?
Q: How much money can I contribute to my 401(k) Plan each year?
Q: Do I have to pay taxes on my 401(k) Plan if I leave my company?
Why establish a Retirement Plan?
There are advantages for both the employer and the employee. Here are just a few:
Employer Advantages: Attract and retain people, improve morale and significant tax advantages.
Employee Advantages: Pretax contributions allow more to work for you, because you are not paying taxes on the earnings until
you withdraw the funds. At the time that you take the distribution, you may be in a lower tax bracket, resulting in a tax reduction. Top of page
What are the advantages in implementing a "qualified plan" vs. a "non-qualified plan"?
A qualified plan is an employer sponsored retirement program that recognizes and satisfies certain IRS requirements.
The employer in a qualified plan may deduct the contributions made, where a non qualified plan cannot. Qualified plan
earnings are not taxable until the time of distribution. The earnings from non-qualified plan assets are subject to immediate taxation. Top of page
What is a 401(k) Plan?
A 401(k) Plan is a great way to save for your retirement. In a 401(k) plan, you are able to put a portion of your pay away pretax.
The greatest feature is that you do not pay taxes on that money until you withdraw it from the plan. Top of page
What is a Roth (k)?
A Roth (k) is not a pre-tax contribution but when a distribution is made, the Roth (k) plus any earnings are tax free, if the contributions are in the plan for 5 years and the participant is 59 1/2. Top of page
What are the advantages of a 401(k) Plan?
A 401(k) plan allows you to save with pretax dollars. Unlike a regular savings account, the amount you contribute to a 401(k) plan,
and its earnings, are not considered taxable income in that year. The contributions are made through convenient payroll deduction
and provide immediate tax reduction because your taxable income is reduced. Top of page
How much money can I contribute to my 401(k) Plan each year?
The 2007 limit for contributions to your 401(k) Plan is $15,500. If you are over the age of 50, you may also make "catch up" contributions. In 2007, you may defer an extra $5,000
in catch up contributions. Top of page
Do I have to pay taxes on my 401(k) Plan if I leave my company?
If you roll your money over into an IRA account or into your new employer's plan, you will avoid all tax penalties on the amount.
However, if you elect to take your money out of the plan in cash, you will owe all applicable taxes, plus an extra 10% if you are
under the age 59 1/2 (some exceptions apply). Top of page
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