Sole proprietorships, partnerships, limited liability corporations (LLCs), or incorporated businesses, including subchapter S corporations, may establish a 401(k) plan. All eligible employees must be allowed to participant in the 401(k). An eligible employee is any employee who: is at least 21 years old has performed one (1) year of service, and worked 1,000 hours in the year beginning with the date of hire. Union employees and non-resident aliens who have no U.S. source of income may generally be excluded from coverage. Note: An Employer can establish less restrictive eligibility requirements than the ones listed above, but not more restrictive ones.
The Traditional 401(k) Plan allows eligible employees to contribute a portion of their salary to a retirement plan. Employers may choose to contribute either matching or non-elective amounts to the plan on behalf of eligible employees. Employer contributions are tax deductible for the Employer – up to 25% of compensation of all participants. Employee elective deferrals are excluded from the employee’s income for federal income tax purposes. Tax-deferred growth potential is possible – any investment earnings grow tax deferred until withdrawn from the plan.