AVAILABLE TO
Employees of nonprofit 501(c)(3)1 organizations and public educational institutions.
HOW IT WORKS
Employees' pretax dollars invested in mutual fund account or annuity contract. Employer may also contribute to the account.
MAIN FEATURES
Loans, rollovers, and employer match may be permitted. Early withdrawal penalty of 10% generally applies on money withdrawn before age 59½. For non-5% owners required minimum distributions begin at later of age 70½ or retirement. Employees may roll over account to next employer who offers an employer sponsored retirement plan, or roll account balance to a Rollover IRA.
ANNUAL CONTRIBUTIONS
Employee elective deferral - maximum dollar amount determined by IRS each year.
The IRS has also set limits on the total amount that may be contributed to your 401(k) account from all sources combined, including any employer matching or profit-sharing contribution, and any employee after-tax contributions. The maximum is the lesser of 100% of compensation or $42,000. The $42,000 limit will be indexed in $1,000 increments based on cost of living adjustments.
Catch-up contributions
Depending on plan rules, you may become eligible to make salary deferral, pretax, catch-up contributions beginning January 1 of the year you turn age 50. These contributions are in addition to your regular deferral contributions. Catch-up contributions are $4,000 for 2005 and $5,000 for 2006. Thereafter, the maximum amount will be indexed in $500 increments.
ADVANTAGES
The above review is meant to serve as a general overview only, other requirements will apply. You should consult a tax advisor for applicability to specific facts and circumstances. If your employer provides plan information, you should always review it carefully to learn more about the plan(s).
1. Effective 1/1/97, all 501(c) tax-exempt organizations are also eligible to sponsor 401(k) plans.