OTHER ASPECTS OF 401(K) PLANS
Besides requirements, 401(k) plans have extra properties:
As long as all employees are covered by the plan, there is no minimum
number of employees needed for a plan to exist. Employees covered by a collective
bargaining agreement may be excluded.
Employees are always 100 percent vested (meaning that they have
the right to take their accumulated pension money out of the fund) in their
elective deferrals. Vesting of non-elective (employer) contributions is subject
to a schedule depending on the terms of the plan.
All 401(k) contributions (employer and employee) are deductible by
The employee elective salary deferrals are limited to $14,000.
For employees at least age fifty, a special "catch up"
feature allows an additional $4,000 of salary deferral in 2005.
As with any account into which you put your hard-earned money,
the rules may have extra details, depending on the plan. Be sure to study your
plan carefully and ask questions.
Now we will briefly explain another type of 401(k) called
the SIMPLE 401(k).