The 401k is simply an account in United States which has been used in a way that you can increase your wealth through investing in different assets like mutual funds, stocks, real estate investment and index fund. It is tax qualified pension plan account which is named as 401k account because it comes under the subsection of internal revenue code. It can also be called future savings, during the year of employment some percent of contribution has been deducted from the pay cheque and deposited into the 401k account which can be used after retirement. It can also be used in a way that invest certain contribution in assets and enjoy its benefit after retirement.
There are many types of 401k account and in order to secure your future make sure you have sound knowledge about these types of 401k which are discussed further. In 401k plans employer choose certain amount for their employees and these are deducted from the employees pay cheque. These types of 401kplans will help you to plan your retirement.
– the safe harbor
In this type of 401k plan the company is very small and has limited employees which make it easier of employer to divide the amount of contribution in their accounts. In such types of 401k plan where employees are less the chances of getting more advantages increases. It is important to get the approval from the government before starting safe harbor plan for the employees. The employer have to give some proves regarding nondiscrimination in 401k rules in order to get approval before starting the business.
– The traditional
These types of 401k plan can be very partial as it allows the employer to customize the plan according to his own choice. He can make any alteration in the rules and can also discriminate among the employees. It totally depends upon the business and its owner how to divide the contribution among the employees. The contribution might not be divides on regular basis it can be seasonal or any time when the business profits allows. If the company is growing and having high profits then employer can reward its team annually through this traditional 401k plan. Even though employer can be partial in this type of plan but still it is considered as fair because every employee is measured through an evaluation test according to which they are rewarded with the benefits.
– Tiered profit sharing
These types of 401k plan is especially designed for those companies who have 50 or less than 50 employees but the company is well enough and make high profits. This type of 401k plan as the name suggest has been offered to a group, the certain group has to be rewarded with the profits sharing for their performance and aptitude. It can be used in a common way too which is called as partnership. If certain group helps to bring large business to the company and on the basis of which they enjoy huge profits then the profit sharing has to be done with that particular group.