What is the advantage of a 401(k) plan over other qualified plans?
Because a 401(k) plan is a special form of a profit sharing plan, many of the provisions are the same. However, since contributions towards a 401(k) plan are essentially made by the employees, the cost to the employer will be lower when compared to a profit sharing plan where all contributions are made by the employer. If the employer already has a plan, changing it to a 401(k) plan allows the costs to be shifted to the employees. Even so, for the plan to be successful and cost effective, a high participant participation rate is essential. Back to Top How does a 401(k) plan compare to an IRA? There are major advantages over an IRA: The annual contribution limit is higher. Participants can borrow from their accounts. The employer may make additional matching contribution. The employer may make additional profit sharing contribution. The employer can make the 401(k) plan part of a new-comparability plan, thus optimizing the contributions for selected employees. The employer can allow for
