Business 401k Plans

People often ask “When do I have access (or official ownership) of any monies my employer has contributed to a 401(k) Retirement Plan?” 

All monies you contribute to a retirement plan are yours.  You can access (with penalty in most cases) at any time.  Employer matched contributions, though, may not be yours to keep immediately.  The “Vesting Schedule” of a 401(k) Retirement Plan refers to the timeframe in which your ownership of your employer’s contributions vests, or takes effect.

An employer’s contributions might vest one year from each contribution date.  If you cancel your plan, or leave your job during the period your employer contributions are held, you will not receive any uninvested employer contributions.  You will be able to keep all vested contributions to date, and, of course all monies you have personally contributed.

There are certain criteria you must meet in order to qualify for investing in a 401(k) Retirement Plan.  Some plans are restricted by your age, length of employment, your income (amount and sometimes type of compensation). Other requirements may consider your marital status and do you already participate in another retirement plan.

A 401(k) Retirement Plan requires you to have Earned Income to open an account or contribute.  Earned income is income from salary, commission or other work related sources.  Receipt of Alamony is also accepted.  Passive income, or income you received from investment related dividends, annunities or rental properties does not qualify you to invest in a 401(k) Retirement Plan.

Married couples may not establish a jointly owned 401(k) Retirement Plan.  All retirement plans are owned solely by the person establishing and contributing to the 401(k) Retirement Plan. 

It is wise to discuss your individual criteria with a qualified investment advisor; or, with your employer to determine if you qualify to set up a 401(k) Retirement Plan

To accomodate various businesses in creating 401(k) plans to fit their budgets, the government has developed many 401K plan variations.  The two major variations are Roth 401(k) and Solo 401(k).

The Traditional 401(k) plan  contributions use pretax dollars.  Contributions are tax deductable and grow tax-deferred until withdrawl.

The Roth 401(k):  Contributions from a Roth plan are after-tax dollars and are not deductable - but returns  are never taxed.  Often, companies providing the Roth 401(k) options, also provide option of both types of 401(k) plans.

 The Solo 401(k) plan is designed for sole proprietors (and their spouses), as well as some partnerships.  The Solo 401(k) plan offers higher annual contribution limits (relative to participants income).  The Solo 401(k) plan also permits after-tax (Roth style) contributions.

If you are knowledgable about financial investments, and have the time to manage your 401K retirement fund, then  consider managing your own 401K account.  Unfortunately, most people do not have the time or experience to manage their own 401K account.  If you fall into the inexperienced category, then it is worth the time and money required to hire a professional investment advisor. 

 Investment advisors generally charge commissions.  These commissions can be in the form of an hourly rate; or, more often, an annual fee based on the assets they manage. 

 Be sure to research a number of investment advisors.  Ask them questions about the type of investments they generally lean towards.  Ask what type of returns other clients can confirm.  Ask for references.  Don’t hire the first investment advisor you talk to.  Take your time in selecting the investment advisor who will ultimately manage your 401K retirement account.