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Employer-Sponsored Plans

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  1. Employer-Sponsored Plans 401(k), 403(b), 457

  2. Definitions • Portion of employee salary is withheld and placed in an investment account. • Contributions and earnings are both tax-deferred. • Higher limits than IRAs ($11,000) • Employers will often match funds

  3. 401(k) Characteristics • Typical of a very large percentage of U.S. companies… • Matching is fairly common • Over $2 Trillion in assets • 50 million+ participants in USA

  4. 403(b) • Similar to 401(k) • Public schools, colleges, universities, non-profit organizations

  5. 457 • Similar to 401(k) • Offered to state and local government employees • Also offered to employees of some tax-exempt organizations

  6. Enrollment in Salary Reduction Plans • Enrollment is not at 100%…yet. • (Ranges from 35%-80%, depending on the type of company and other factors) • Automatic enrollments are now allowed by law • This has caused enrollments to increase • Enrollment usually is contingent on a ‘probationary period.’ • The eligibility period is shrinking for many companies

  7. Vesting • Vesting schedules typically identify at what point the employer’s matching contributions become the property of the employee • Often, it may take 2-4 years to become ‘fully vested.’

  8. Investment Choices • Traditionally, this has been an achilles heel of 401(k) plans • Poor selection • Own company stock • This is changing rapidly • Seek diversification and correct asset allocation

  9. Options at Termination • Lump-sum distribution • Leave with current 401(k) plan • Roll-over into new company 401(k • Roll-over into an IRA • Beware: If you take possession of the money in transit, you will have taxes witheld…

  10. Tips to maximizing benefits from 401(k) plans • Start early • Contribute the maximum • Don’t leave money on the table (you may have to adjust contributions) • Be careful in selecting investments; re-allocate once each year • Be proactive in managing upwards…