A 401(k) plan is usually funded with salary-deferred contributions; however, as an employer, you may make matching contributions for each employee who makes a salary-deferred contribution, and you may also add a profit-sharing feature, which allows you to make discretionary contributions. The level for contributions through payroll deduction is up to the lesser of 100% of salary or $17,500 with an additional $5,500 catch up provision for those over age 50 (2006). Like a profit-sharing plan, you may put a vesting schedule feature on the plan. For example, you may require an employee to work, say, five years to become vested; the employee would become vested in a percentage, which increases with each additional year of service. Another attractive feature of a 401(k) plan is that loans can be made from the plan to the employer and the employee. One good thing about borrowing from a qualified plan is that the borrower pays back him/herself, including interest, unlike borrowing from a bank, where the interest is paid. Like a profit-sharing plan, you may put a vesting schedule feature on the plan. The IRS has strict rules about vesting schedules and loans offered under a qualified plan. Be sure to consult with your plan benefits professional to ensure you stay within the limits of the law.
If you need further information on this retirement plan or any of the other services LPL Financial offers please contact your LPL Financial Consultant either by telephone at 888.801.1666 or via our easy inquiry form online.
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