Corporate §401(k)/Roth §401(k) Accounts
Many employees have the opportunity to invest in a tax-advantaged retirement program known as a §401(k) plan. By making regular contributions to a §401(k) account, you have a convenient means to enhance your retirement savings as you work toward building your financial future.
How do §401(k) plans operate?
- Your employer determines the provisions of the plan, including investment options and optional plan features such as a matching or non-elective employer contributions and the ability to defer to a Roth §401(k) or take a loan.
- You decide how much you wish to invest each pay period and how your contributions will be allocated among the available investment options.
- The Legend Group establishes the plan in accordance with your employer’s instructions in conjunction with an experienced plan administrator that directs your contributions to the appropriate investments.
Traditional §401(k) accounts vs. Roth §401(k) accounts
- With a traditional §401(k), contributions are made via pre-tax payroll deductions, and both contributions and investment earnings are treated as tax-deferred until withdrawal.1
- Some employers also offer Roth §401(k) accounts, providing participants with the option to build tax-free retirement income. While Roth §401(k)s are funded with after-tax dollars, these accounts may grow tax-free, and all qualified withdrawals are tax-free.2
- Contributions may be made to a Roth §401(k) account in addition to, or in place of a traditional §401(k) account, and your maximum annual contribution limit may be divided between the two accounts in any manner you wish.
1Distributions from a traditional retirement account are subject to ordinary income taxes in the year distributed.
Distributions prior to age 59½ may incur an additional 10% penalty.
2In order for the Roth §401(k) account to be distributed tax-free, it must be funded for a minimum of five years and the account holder must have attained age 59½. A participant would also qualify for tax-free distributions if the account was held for five years and the account owner became disabled (under the strict definition of disability of §72(p) of the IRS code). Furthermore, in the event of the account holder’s death, beneficiaries would receive tax-free distributions if the account was held for at least five years. Otherwise, the distribution would be treated as part return of principal and part taxable earnings.
A 10% premature withdrawal penalty may apply to the earnings.