Table of Contents
What is a 401(k) plan?
A 401(k) plan is a retirement account specific to the United States, offered by companies to their employees. It allows employees to contribute a portion of their pre-tax income to a tax-advantaged account that invests in various securities. Employers may also make contributions to these accounts on behalf of their employees.
Are companies obligated to offer 401(k) plans to their employees?
No, companies are not obligated to offer 401(k) plans to their employees. However, offering such plans can be an attractive benefit to attract and retain talent.
What are the different types of 401(k) plans?
There are various types of 401(k) plans, including:
- Traditional 401(k) plan
- Roth 401(k) plan
- Automatic Enrollment 401(k) plan
- Safe Harbor 401(k) plan
- Non-Qualified 401(k) plan
- Solo 401(k) plan
Each type has its unique features and benefits.
How do 401(k) accounts work?
In general, the process involves employees contributing a portion of their salary to their 401(k) account, either pre-tax or after-tax, depending on the type of plan. Employers may match contributions. Funds in the account grow tax-free until retirement. Employees have control over contributions and investments. Early withdrawals may result in tax penalties.
What happens to an employee's 401(k) if they leave their job?
When an employee leaves a company, they have options for their 401(k) account, including keeping it in the account (without further contributions), rolling it into their new employer's 401(k) plan, or withdrawing the funds early, though the latter may result in tax penalties.
How should non-US-based companies handle 401(k) plans for US employees?
Non-US-based companies providing 401(k) plans to US employees may encounter regulatory challenges. Payment execution platforms can assist by offering global payroll services and helping with compliance and reporting requirements. These platforms can streamline the process of managing 401(k) plans for US employees from abroad.