[topic 1]

401k Plans Are Defined Contribution Plans

A 401k plan is what's called a defined contribution retirement savings plan. In defined contribution plans...

-- The amount contributed to each participant's account is set ("defined") -- either by the plan participant or by the employer, and as either a flat rate or a percentage of pay.

AND...

-- The amount each participant will receive upon retirement is left up to the effect of investment performance on the contributions.

Other defined contribution retirement savings plans include SEPs, Simple IRAs, Profit Sharing Plans, and Money Purchase Plans. The 401k is by far the most popular.

Defined contribution plans differ from traditional pension plans, called defined benefit plans, which specify specific amounts of money (the "benefit") employees will receive when they retire rather than the periodic contribution amounts that will be put into the plan to ensure that final benefit amount.

In 401k plans...

-- Each participating employee decides the amount to be withheld as a 401k contribution each month from his or her pay.

-- The employer withholds these amounts BEFORE calculating income taxes on the employee's pay.

-- The employer forwards the money to a third party administrator, who invests the employees' contributions per specific instructions provided by the employees.

-- Some employers choose to add to participants' 401k contributions through employer matching, profit-sharing and/or qualified nonelective contributions; see topic 7, below, for more on employer contribution options and definitions.

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[topic 2]

The Plan Sponsor

401k plans must be "sponsored" by an employer. Their very IRS-mandated operation -- i.e., that contributions are pulled from employees' pay BEFORE are taxes -- is predicated upon the plans being run through an employer's payroll system. (Sponsoring a 401k plan does not mean, by the way, that an employer need contribute financially to employees' accounts. Please see topic 7, below, below for information on employer contribution options -- including the option not to contribute.)

The 401k is not the only tax-deferred retirement savings plan. Annuities and Individual Retirement Accounts (IRAs) are also popular. Buthe 401k is by far the most popular:

-- 401k plans are extremely convenient for plan participants. Participants simply establish the contribution level they want, then the employer has the amount pulled from the participant's pre-tax pay each period and forwarded to the 401k investments the participant has selected. Participants save money they might spend if it was ever issued to them and left up to them to deposit in their retirement account.

-- 401k plans allow for significantly higher annual contribution levels than IRAs or annuities.

-- Higher contribution levels mean a greater impact on lowering participants' current income taxes.

-- Higher contribution levels mean more money being set aside -- and allowed to compound -- for retirement.

-- 401k plans can include loan features that allow participants to borrow from their retirement savings; IRAs and most annuities do not offer the  possibility of loans.

Plan sponsorship generally entails the employer appointing an in-house person to act as liaison between the plan's vendors and the company's employees. With 401k Easy Online, this role is greatly simplified because employees have direct Internet access to everything from general 401k education materials, to enrollment and participation materials, to monthly account statements and investment information, and even to updating certain personal and account information.

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[topic 3]

The Plan Vendor (a.k.a., Plan Provider)

401k plans are supplied by a vendor, who typically supplies the 401k plan itself and all its related documentation. The vendor deals with the IRS and related governing agencies to ensure the startup plan is consistent with current regulations.

Often the vendor supplies 401k administration services, too. Sometimes the vendor even supplies its own lineup of 401k plan investments.

-- Administration for a 401k plan can be legally supplied almost any party -- the plan vendor, the plan sponsor, or any third party -- so long as the plan is run in accordance with current regulations.

-- Investments for a 401k plan can be supplied by the plan vendor or by another party, the investment custodian.

[topic 4]

Third-Party Administrators (TPAs)

Administration for a 401k plan can be legally supplied almost any party -- the plan vendor, the plan sponsor, or a third party -- so long as the plan is run in accordance with current regulations, among them IRS compliance testing stipulations.

-- Third-party administrators (TPAs) are often contracted by 401k vendors or by the 401k plan sponsors themselves to handle a 401k plan's month to month administration.

-- Plan sponsors (i.e., the employers) supply the third-party administrators with payroll and related 401k participation data (such as loan and distribution requests) each month. The TPA processes the data and instructs the plan sponsor regarding forwarding 401k monies to the appropriate investment custodian(s).

-- 401k Easy Online is like a third-party administrator -- one that's accessible 24 hours a day, 365 days of the year, and dedicated solely to you and your company plan. Your plan-specific system works off basic payroll and related data you feed it. Visit our Plan Sponsor Gateway page for more about 401k Easy Online's self-service plan management.

-- 401k Easy Online handles your plan participants' requests, too -- at any time, day or night, 365 days a year. Visit our Plan Participant Gateway page for more about 401k Easy Online's self-service plan participation.

[topic 5]

Auto Enrollment

The 401k "auto enrollment" procedure allows employers to AUTOMATICALLY enroll employees in the 401k plan as soon as the employee meets the plan's eligibility requirements. Employees can elect to decline enrollment at any time.

-- The employer must set the auto enrollment contribution level in advance; 3% to 5% of compensation is the typical auto enrollment contribution level chosen.

-- The employer must set an auto enrollment investment selection ahead of time; a money market fund is the most typical auto enrollment investment.

-- Employers must, at least annually, notify all employees that the company 401k uses the auto enrollment feature and how an employee can cease participation in the plan or put a block on being enrolled automatically in it.

-- Employers must immediately notify auto-enrolled employees of their new 401k participation status.

-- Any employer contributions being made to traditionally-enrolled participants' accounts must also be made to auto-enrolled participants' accounts.

-- Auto-enrolled plan participants must have the opportunity to change their default investment selection and/or contribution rate.

-- If an automatically-enrolled employee soon after cancels his or her participation in the plan, any money put into the plan on the person's behalf must stay in the plan until the person's employment is terminated, or the employee reaches age 65.  At that point, the employee has the same withdrawal choices (IRA rollover, rollover into another employer's qualified retirement plan, or distribution) as any 401k participant of the same age and employment status.

Automatic enrollment is also called passive enrollment and negative enrollment; the default contribution and investment designations are called the plan's negative elections.

Auto enrollment is not available in all 401k plans. (401k Easy Online, for instance, allows auto enrollment in its Elite 401ks but not its Economy 401ks; please see our Options page and our Pricing page for other distinctions between our Elite and Economy plans.)

The IRS has only recently approved the idea of negative elections, and certain legalities outside of the scope of the IRS remain unclear. It is prudent to consult a legal advisor before adopting automatic enrollment for your 401k plan.

[topic 6]

Employee Contributions

Contributions to a 401k account can come from employees and/or their employers. Employee contributions are withheld from the participant's pay BEFORE income tax withholding is calculated. They are "pre-tax" contributions.

-- Employees can also transfer money into their current 401k from their previous employer's 401k in the form of a rollover. Consolidating accounts can simplify oversight and management of a comprehensive investment strategy under the direction and control of the plan participant.

-- Participating in a 401k plan can reduce a person's lifetime income tax burden, because income taxes aren't assessed on 401k contributions until the money is withdrawn from the plan, which generally occurs during retirement, at which point the person is likely in a lower income tax bracket.

Employee contributions are limited to the lesser of 15% of the participant's annual earnings or the year's federally mandated maximum (which varies from year to year). For 2004, the maximum is $13,000.

-- These limits apply to employee contributions only.

-- Employer contributions to an employee's account can take the total annual contribution amount much higher.

-- Returns earned on 401k investments aren't restricted by any ceilings and can be a substantial source of growth for a 401k account.

[topic 7]

Employer Contributions

Contributions to a 401k account can come from employees and/or their employers. Employers choose whether or not to contribute to their employees 401k accounts. If they choose to contribute, they can do so in any of three ways:

-- In a fixed dollar amount to each participant's account (e.g., $500 to each participant's account each year).

-- At a fixed rate of each participant's pay (e.g., each participant gets an amount equal to 3% of his or her salary).  This is called a profit sharing contribution or a discretionary employer contribution.

-- At a rate that depends on how much the employee contributes to the 401k plan (e.g., 25¢ for every dollar the employee contributes). This is called a matching contribution. Because matching contributions depend on the employee's level of participation, they encourage employees to join the 401k, contribute as much money as they can, and continue participating over the years (that means staying with the company over the years).

-- Employers are NOT required to contribute to their employees' 401k accounts in any way. Employer contributions are completely voluntary. The one exception is when employer contributions are used to rectify a plan imbalance, in which case qualified nonelective contributions might be made, say, to all nonhighly compensated employees' accounts.

Any employer qualified nonelective contributions are 100% vested to employees when made. Employer matching and profit sharing contributions, on the other hand, do not have to immediately become the property of the employees. Instead, employers can impose a vesting schedule by which the 401k participants gain ownership of the contributions.

For example...

-- An employer chooses to make matching contributions of 25¢ to each dollar each plan participant contributes. This is called the matching formula. (Numerous matching formulas are available. See our Elite 401k Order Form or our Options page for examples.)

-- This employer then stipulates that people who have participated in the plan two years or less only get 25% ownership of these employer-provided matching contributions. People who have participated in the plan three years get 50% ownership of the matching contributions. People who have participated in the plan four years get 75% ownership of the matching contributions, and people who have participated in the plan five years or more get 100% ownership of matching contributions. This schedule of ownership is an example of a vesting formula. It is relevant if a participant leaves the plan before reaching fully vested status. Any non-vested employer contributions revert back to the plan and can be used to pay matching contributions owed to other participants. (Numerous vesting formulas are available. See our Elite 401k Order Form or our Options page for examples.)

-- The  Internal Revenue Code places dollar amount ceilings and other restrictions on matching and vesting formulas.

[topic 8]

401k Contribution Guidelines and Limitations

There are three federally mandated limitations as to how much an employee can contribute to his or her 401k account each year, and how much the employer can likewise contribute to the company's plan:

I. 401k Plan Participant Limitation

The federal government puts a ceiling on how much an individual can contribute to his or her 401k account each year. This ceiling is adjusted annually for inflation and other factors. For instance, the 2003 ceiling was $12,000 while the 2004 ceiling is $13,000. This maximum will increase by $1,000 per year until 2006, when it reaches $15,000.

Regulations also provide that if a person is 50 years or older, he or she can contribute an additional amount each year as a "catch-up contribution." Catch-up contributions, introduced in 2002, are designed to help older workers boost their 401k accounts. (The 401k did not come into existence until the late 1970s; thus, many older workers missed out on 401ks early in their careers.) The catch-up contribution limit started at $1,000 a year and is increased by $1,000 a year each year until 2006, when it will be $5,000. For 2004 the catch-up contribution limit is $3,000.

Examples: A 25 year old employee joins the company's 401k and earns $10,000 for the year; he can contribute the entire $10,000 to his 401k account. His 54 year-old manager, meanwhile, earns $200,000 and wants to contribute as much of it as she can to her 401k account. For 2004 she can contribute $13,000 plus another $3,000 as a catch-up contribution for a total of $16,000.

II. 415 Limitation

The 415 limitation is an overall limit on the maximum amount that can be added to a 401k plan participant's account during a year from all sources. The 415 limit includes the employee's voluntary payroll deduction (as subject to the Participant Limitation described immediately above), combined with any matching, profit sharing or other contribution(s) made to the participant's account by the employer.

The 415 limitation is currently set at $41,000 OR the employee's total compensation for the year, whichever is less.

Examples: An employee earns $10,000 and contributes $2,500 of it to his 401k account. His 401k offers dollar-for-dollar matching contributions. That means his employer will contribute $2,500 to his account for an employee-plus-employer total of $5,000. The young man's immediate supervisor earns $25,000 and contributes the $13,000 2004 maximum to the 401k. Again, the employer matches the supervisor's contribution dollar-for-dollar. However, that brings the total contributions to the supervisor's 401k account up to $26,000 for the year, which is more than his total compensation and thus in excess of the 415 limitation. The employee and/or the employer must contribute less in order to keep the cumulative total under $25,000.

III. 404 Limitation

The 404 limitation controls the maximum dollar amount an employer can contribute to the company's plan during the year. Employer contribution can be in various forms, including profit-sharing and matching contributions.

The 404 limitation cannot exceed 25% of the company's payroll (total amount of all employees' compensations), prior to employee deferrals, with the following stipulations: The employees' compensations used in the calculation must be eligible to participate in the 401k, and wages in excess of $200,000 cannot be factored into the calculation.

Examples: (1) A company with 10 employees has an annual gross payroll of $1,000,000. No employee earns more than $200,000 per year. The most that the employer can contribute to the 401k is $250,000 across all participants. (2) A company with 100 employees has a gross payroll of $1,000,000,000. Ten employees are paid $2,000,000. The 404 calculation says the company can only recognize the first $200,000 earned by these ten well-paid employees, thus reducing the eligible payroll by $18,000,000 to $982,000,000, which equates to a $245,500,000 lid on employer contributions.

[topic 9]

401k Investments

Certain types of investments are "qualified" under the Internal Revenue Code to receive 401k contributions. These include:

-- Mutual fund investments (stocks, bonds and money market funds). Mutual fund investments are by far the most popular 401k investments.

-- Publicly traded stocks and bonds (excepting municipal or tax free bonds)

-- Bank collective funds

-- Insurance company investments, including annuities

Every 401k plan must offer a minimum spectrum of investments, as defined by the Internal Revenue Code.

-- Most plans offer between five and 15 investment choices.

-- Returns earned on 401k investments are automatically reinvested in the participants' accounts, increasing the account value over time.

-- Removing investment returns from a 401k, just like removing any other money from a 401k account, constitutes a withdrawal and is subject to the penalties and withholdings of such.

With 401k Easy Online you have an extremely wide array of potential investments. Please visit our Investments page for examples and details.

[topic 10]

401k Investing and Tax-Deferred Saving

All 401k contributions -- employee, employer and even returns earned on 401k investments -- are exempt from income taxation (in most cases state, in all cases federal) so long as the money remains in the plan. Delaying income taxation can have a dramatic positive effect on the compounding growth of an account.

-- Other things being equal, an investor can amass nearly THREE TIMES as much money in a 401k tax-deferred investment over a 30 year period as in a taxable savings plan or in investments earning the same rate of return but whose returns are reduced each year by income taxation.

-- When money is taken out of a 401k plan for ANY reason, except a 401k loan (see next topic) or rollover into an IRA or new employer's 401k plan, it is considered income and taxed as such.

[topic 11]

Withdrawals and 401k Loans

Although 401k plans are meant to be long term savings vehicles, participants cannot leave money in a 401k account indefinitely:

-- Plan participants generally MUST begin taking withdrawals from their 401k accounts when they reach age 70 1/2.

-- Plan participants CAN begin taking withdrawals from their 401k accounts as soon as they reach age 59 1/2.

-- Earlier withdrawals can be made without penalty if the participant dies or incurs a qualifying permanent disability.

-- At any time, a plan participant leaving a company can remove his or her 401k money without subjecting it to early withdrawal penalties by rolling the money over into a Rollover IRA or new employer's qualified retirement savings plan (401k or other).

Outside of these instances, there are only two ways for participants to withdrawal money from a 401k account while employed: hardship withdrawal and 401k loan.

-- Hardship withdrawals differ markedly from 401k loans. For instance, hardship withdrawals don't have to be paid back (loans do) BUT the money withdrawn is subjected to substantial early withdrawal penalties (not the case with 401k loans).

To view in a secondary window a chart briefly comparing hardship withdrawals with 401k loans, click here.

Hardship withdrawals and 401k loans can increase a plan's popularity even if participants never take advantage of the features, because employees don't feel participation means sending their money into some seemingly never-to-be-seen-again abyss. Retirement, after all, may be decades away.

-- Hardship withdrawals, by law, are allowed within all 401k plans, but some charge employees and/or employers for using them. Such is never the case with 401k Easy Online.

-- 401k loans are NOT a mandatory aspect of 401k plans. Our Elite 401ks include them, but our Economy plans do not. Feel free to contact us if you'd like to discuss the reasons why and to determine which approach is better suited to your company's needs. (See our Options page and our Pricing page to compare our Ecomony and Elite 401k plans, both of which are run via 401k Easy Online.)

[topic 12]

ERISA Participant Rights Protections

Two bodies of legal work comprise the framework for 401k plans: the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA).

ERISA sets standards for, among other things...

-- Participant eligibility

-- Investment choice

-- Plan funding/bonding

-- Vesting of employer contributions

-- Disclosure of plan and investment and investing-related information to current and prospective plan participants and their beneficiaries

ERISA aims to ensure that retirement monies actually exist at employees' retirements by preventing fund mismanagement by administrators, trustees and others. An employer interested in purchasing an ERISA bond for the company's 401k typically buys a bond that covers 10% of the plan's total assets. ERISA bonds are very economical and easy to buy --- most insurance agents offer these bond's to small companies at very low annual rates.

Fiduciary Liability Insurance
Fiduciary liability insurance is different than an ERISA bond. Fiduciary liability insurance is a completely discretionary purchase on the part of the employer; it provides broad coverage for all persons who are de facto "fiduciaries" of the company's plan. A fiduciary is someone who provides investment advice to the plan for a fee, and/or has discretionary control or authority over the administration of the plan, and/or who has authority or control over plan assets. (note: NASD Registered Representatives are not considered fiduciaries; they earn commissions on plan assets and typically do not charge fees for investment advice.)

Fiduciary liability insurance is very inexpensive; the cost is approximately five 5 percent of the coverage limits purchased, unless the company offers its own stock as an investment option, which increases the premium. Coverage is broad, and the only exclusions are for deceptive practices and fraud, which is covered by the ERISA bond. Providers of fiduciary liability insurance coverage include American International Group (AIG); Chubb Executive Risk; Lloyd's of London; Reliance Insurance; and Travelers Property Casualty.

[topic 13]

IRS Compliance Testing

To prevent employers from designing 401k plans that economically benefit only highly-paid personnel, lawmakers wrote compliance test mandates into the rules governing 401k plans.

-- In general, no plan can be set up in a way that discriminates "as to the availability of rights, benefits and features" available to different employees under the plan.

Specifically...

-- Every 401k must pass mandated compliance testing every year. The tests compare the participation rates of different classes of employees (see below).

-- Beginning in 1999, employers can choose to skip the tests and instead make a requisite contribution to their so-called non-highly-compensated employees' 401k accounts. This is called the safe harbor method of plan administration (see topic 14, below). It is NOT availalbe in all 401k plans. (401k Easy Online, for instance, allows it in our Elite 401ks but not in our Economy 401ks, which are designed to keep plan management ultra-simple. See our Options page and our Pricing page to compare our Ecomony and Elite 401k plans, both of which are run via 401k Easy Online.)

-- Employers can decide as late as 30 days before the end of each plan year whether or not to take the safe harbor route. However, if, as its safe harbor contribution, the employer wants to make matching contributions rather than the flat 3% of compensation contribution (explain), the employer must define the matching formula well ahead of those 30 days; in fact, any safe harbor matching contribution must be defined and communicated to employees no later than 30 days before the START of the applicable plan year so employees have plenty of time to adjust their contribution rates accordingly.

Not correcting a failed year-end compliance test can mean substantial penalties and possibly even disqualification of the plan's tax-exempt status. Test failures can be VERY expensive in terms of IRS penalty fees, man-hours spent trying to correct the problems and lost rapport with your employees, who may have to amend and refile their income tax forms -- and often pay additional income taxes, too.

The most common compliance tests are the ADP test, ACP test, and top-heavy test.

-- The ADP test (Actual Deferral Percentage test) compares the percentage of salaries that different classifications of employees are diverting into the 401k plan.

-- The ACP test (Actual Contribution Percentage test) compares the percentage of employer contributions being diverted into the 401k accounts of different classifications of employees.

-- The top-heavy test looks at the degree to which higher-paid employees' money dominates the 401k plan.

[topic 14]

Safe Harbor 401k Plan Administration

401k compliance tests are designed to ensure 401k plans have a threshold balance, at minimum, of participation of rank-and-file employees in relation to highly-paid employees.

The IRS offers an alternative means of achieving 401k plan balance: The safe harbor method of plan operation lets 401k plans skip their annual 401k discrimination testing so long as the sponsoring employer meets certain employer 401k contribution requirements designed to ensure broad participation in the company plan and provides 100% immediate vesting of the contributions.

-- To qualify a 401k plan as a safe harbor plan, an employer must make matching contributions that fulfill the below requirements or make nonelective contributions equal to 3% of each eligible employee's compensation.

-- Nonelective contributions are made to all eligible employees, regardless of if the employees participate in the company 401k plan. Matching contributions, on the other hand, being based upon salary deferral amounts, are made only to active 401k participants' accounts.

-- If the employer chooses to make safe harbor matching contributions, those contributions must meet two requirements: First, each non-highly-compensated employee must receive a dollar-for-dollar match on salary deferrals up to 3% of compensation and a 50¢ to the dollar match on salary deferrals from 3% to 5% of compensation. Second, the rate of any matching contributions being made to highly compensated employees cannot exceed that being made to non-highly compensated employees.

The employer must provide annual information to employees explaining the 401k plan's safe harbor provisions and benefits, including that safe harbor contributions can not be distributed before termination of employment and that they are not eligible for financial hardship withdrawal.

Employers can decide as late as 30 days before the end of each plan year whether or not to take the safe harbor route. However, if, as its safe harbor contribution, the employer wants to make matching contributions rather than the flat 3% of compensation contribution, the employer must define the matching formula well ahead of those 30 days; in fact, any safe harbor matching contribution must be defined and communicated to employees no later than 30 days before the START of the applicable plan year so employees have plenty of time to adjust their contribution rates accordingly.

The safe harbor method of plan administration is NOT availalbe in all 401k plans; please check with your plan provider for availability. (401k Easy Online, for instance, allows it in our Elite 401ks but not in our Economy 401ks, which are designed to keep plan management ultra-simple. See our Options page and our Pricing page to compare our Ecomony and Elite 401k plans, both of which are run via 401k Easy Online.)

401k Easy Online Elite includes requisit safe harbor notification to employees within a plan-specific Summary Plan Description, a document that's updated at least annually and that's designed to explain the company plan to its employees.

-- If you don't choose the safe harbor method of 401k plan administration or if you choose our Economy 401k (which, for several reasons, doesn't allow for safe harbor administration), we encourage you to use 401k Easy Online's point-and-click compliance testing at least once a month to keep well apprised of your plan's health. The tests take mere seconds, and seeing any potential imbalance early can make correction quite simple.

-- Feel free to contact us if you'd like more information about safe harbor plan administration and determining if it's the right approach for your company.

[topic 15]

Economic Growth and Tax Reconciliation Act of 2001 (EGTRA)

The Economic Growth and Tax Reconciliation Act of 2001 made several pertinent changes to federal 401k regulations. To view a secondary window listing the changes click here; unless otherwise stated, the EGTRA amendments took effect January 1, 2002.

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[topic 16]

401k-Type Plans for One-Person Businesses:
Introducing 401k Easy Online-For-One

As of January 1, 2002, the 401k became an attractive retirement savings vehicle for even owner-only businesses. Upwards of 18 million one-person business owners are eligible to participate in one-person 401k plans. These people are accountants, lawyers, consultants, doctors, software programmers, and other professionals, and their businesses run the gammut from corporations to sole proprietorships to non-profit organizations.

401k Easy Online offers two levels of one-person plans, both of which are highly affordable: our Economy-for-One plan costs just $395 a year, and our Elite-for-One plan, which allows for greater plan customization and investment flexibility, costs $595 a year. Please see our Options page for a complete comparison of the two approaches. The plans are designed for owner-only businesses (including spouse) as well as for businesses whose employees can be excluded under federal laws governing plan coverage requirements.

One-person plans are subject to the same contribution maximums as other 401k plans: namely, participant contribution cap, the participant-plus-employer-contributions cap (the 415 Limitation), and the cap on how much an employer can contribute to employees' 401k accounts in aggregate (the 404 Limitation). See topic 8, above, for a complete explanation of these limits.

The increases that took effect on January 1, 2002, in particularly the 404 Limitation but also the others, greatly heightened the 401k's attraction to owner-only businesses. Now such can shelter significantly more money -- sometimes as much as twice as much -- within a 401k as within other qualified retirements plans, including money purchase pension plans, simplified employee pension (SEP) plans and savings incentive match plans for employees (SIMPLEs).

Now, companies are permitted to contribute as much as 25 percent of payroll to the 401k plan. In an owner-only plan, that entire 25 percent can go into the owner's 401k account as an "employer" contribution (subject to the other limitations described above in topic 8.) This is a significant increase over previous maximums owner-only plans were subject to.

Calculating the maximum contribution that a one-person business owner can make to his or her 401k account is fairly straightforward, but the calculation varies slightly depending on if the business is a sole proprietorship, partnership, or corporation. Contact us with your business' type and we'll be happy to supply you with the appropriate formula for determining the optimal "participant" and "employer" contributions for your owner-only plan.

Key Benefits of One-Person 401ks -- and Particularly 401k Easy Online's One-Person 401ks:

-- Our Economy 401k costs just $395 per year for a one-person plan. Our Elite version, which allows for heightened plan design and investment flexibility, including 401k loans, cost $595 a year. See our Options page for a complete product comparison, or go straight to our Order page.

-- The setup fee for your 401k Easy Online plan is likely tax-deductible; see our Pricing page.

-- You'll see a reduced personal income tax bill, because your 401k contributions are deducted BEFORE income taxes are assessed, lowering your taxable income.

-- You enjoy what can be significant tax-deferred savings advantages, as described in topic 10, above. For instance, investment returns on 401k contributions aren't taxed until they're withdrawn from the plan; the compounding effect of returns reinvested while undiminished by capital gains and other taxation can be substantial over time.

-- As of 2004, you can contribute up to $43,000 per year to your 401k account; that figure is a result of "participant" regular plus catch-up contributions plus "employer" contributions (see next). If you contact us we'd be happy to help you determine your exact figure.

-- As a 401k "participant" you can defer up to $13,000 (for 2004) of your compensation into your 401k account. This maximum will increase by $1,000 per year until 2006, when it's currently set to cap out at $15,000.

-- As a 401k "participant" you can defer an additional $3,000 (for 2004) into your account IF YOU'RE 50 YEARS OF AGE OR OLDER under the catch-up provision. This cap will increase by $1,000 a year until 2006, when it's currently set to cap out at $5,000. Catch-up contributions are NOT subject to other contribution limits described herein.

-- As a 401k sponsor you can make "employer" profit-sharing contributions up to 25% of payroll (i.e., 25% of your salary).

-- You can roll over money into your new 401k account from an SEP, SARSEP, SIMPLE IRA, traditional IRA, Keogh, 403b, 457 or old 40k plan.

-- At any time we can pretty much immediately expand your 401k Easy Online system to accept any employees you hire. (Additional set-up and annual maintenance fees will apply; see our Pricing page for pricing on other-than one-person plans.)