In America, the likelihood of a comfortable retirement is not assured.
This trustee is responsible for collecting the contributions, investing them, and issuing distributions.
It’s important to maintain a reliable accounting of plan activity.
It’s all spelled out in our Safe Harbor 401(k) guide if you want to learn more.
Once you’ve selected a plan type, you need to adopt a written document that — according to the IRS — “serves as the foundation for day-to-day plan operations.” That language may sound a little intimidating, but your 401(k) plan administrator usually handles this paperwork for you.
For businesses that are ready to take the plunge, the IRS website covers the actions you need to take to get everything set up.
In the event you don’t speak tax code, here’s a more approachable look at what goes into setting up a 401(k) retirement plan.
A plan’s assets must be held in trust to ensure that they’re used solely to benefit plan participants and their beneficiaries.
In other words, all those employee and employer contributions need to be kept in a safe place and monitored by a designated trustee.
When choosing a plan type, one of the biggest considerations is how you want to prepare for annual nondiscrimination testing that’s designed to make sure plans are just as accessible to entry-level employees — or those with lower compensation levels — as they are to executives.
Plans that require employers to make contributions to employees’ 401(k) accounts tend to have an easier time passing the tests, and may even be exempt from testing if they’re designed properly.