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A 401(k) plan is suitable for a company of any size that is looking for a retirement solution that allows high levels of salary deferrals by employees. Plans are generally offered to all employees at least 21 years of age who worked at least 1,000 hours in the previous year.

Employee contributions are generally made with pre-tax dollars, although some 401(k) plans feature after-tax Roth contributions. Earnings grow tax-deferred.

The plan is funded with elective employee salary deferrals and optional annual employer contributions. The plan does not need to be funded annually. Employer contributions are tax-deductible up to 25% of participant compensation. Employee salary deferrals are fully vested immediately, while employer contributions vest according to plan terms.

Contributions amounts are determined by the IRS. See Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits for current information.

Cannot take withdrawals from the plan until a “trigger” event occurs, such as turning age 59½, disability, or death. 10% early withdrawal penalty applies if you are under age 59½ and taking a distribution. Required minimum distributions start at age 72.