401k_tax_implications[1]

401k_tax_implications[1] - 1 401k Plans ACCT618-1001B-01...

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1 401k Plans ACCT618-1001B-01 Phase 1 Individual Project CTU Online [Type the author name] [Pick the date]
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This paper is a discussion on 401k plans which covers the types of plans, plan contributions, contribution limits, and nondiscrimination requirements. This paper also covers the tax implications that implementing a plan may have on BLC as well as the benefits that BLC could receive by implementing a 401k plan.
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3 BLC is contemplating the ideal of implementing and rolling out a 401k. The proposed plan will include a company match of $0.50 for every $1.00 that the employee contributes up to 6% of the employee’s salary. Human Resource management within the company feels that this plan could help provide a better competitive edge during the employee recruitment process, improve morale within the company, and minimize employee turnover rates. It has been estimated that BLC will contribute $225,000 annually to this plan, but will save $60,000 in employee turnover costs. BLC’s management is quiet concerned about these additional costs and would like to know what the tax implications of a program like this would be, if any. There are many reasons for employers such as BLC to implement a retirement plan such as a 401k. A well organized and designed 401k plan can help to not only attract, but can help to retain talented employees as well. A 401k plan would allow employees to determine how much, if any, that they would like to contribute on a pre-tax basis. BLC could be entitled for a tax deduction for any contributions that the company makes to its employees’ accounts which would in turn reduce BLC’s tax liability. The 401k allows for greater participation as the plan benefits a mix of rank and file employees rather over plans than primarily cater to owners and managers. Contributions made to a 401k plan are generally not subject to be taxed at neither the Federal nor State levels. A key selling point to employees is that a 401k, if setup properly, can be taken with the employees when they leave the company which eases the plan’s administration duties (Publication 4222, 2008). Before BLC can implement a 401k plan the company will have to determine which type of 401k plan it would like to offer to its employees. There are three types of 401k plans which include a traditional 401k plan, a safe harbor 401k plan, and an automatic enrollment 401k plan.
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4 Each of these plans is unique in their own right. Each plan does allow for employees to make contributions through salary or payroll deductions and can be used by an employer of any size. Types of 401K Plans The most flexible of the three types of plans is the traditional 401k plan. Under this type of plan BLC could use its own discretion in determining whether or not it would be in the company’s best interest to make contribution on behalf of its employees, to make matching contributions, or both. Under the traditional 401k plan BLC could implement a vesting schedule. A vesting schedule would give the employees the right to the contributions contributed by BLC
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This note was uploaded on 06/01/2010 for the course ACCT 618 taught by Professor Franklimmitchum during the Spring '10 term at Colorado Technical University.

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401k_tax_implications[1] - 1 401k Plans ACCT618-1001B-01...

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