Traditional 401k

Tailor your Traditional 401(k) plan by aligning your matching and vesting schedules with your budget and strategic objectives.

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What is a Traditional 401k

A Traditional 401k is a flexible retirement plan that allows for tailored design and contribution structures. It offers the freedom to customize matching and vesting schedules to align closely with your business objectives and budget.

Ideal for companies willing to navigate compliance intricacies, a Traditional 401k serves as both an attractive employee benefit and a strategic financial tool for long-term growth.

Contribution Limits:

Employees can contribute up to $22,500 for 2023, and $23,000 for 2024.
An additional $7,500 catch-up contribution is available for participants 50 and older.
Safe Harbor 401(k)s support both Roth and pre-tax contributions.

Eligibility:

Employees with 1,000+ hours of service within a year.
Part-time employees with 500 hours of service for three consecutive years. (Reduces to two years in 2025)
Employers have the ability to require up to 1 year of service before entering the plan, and enrollment periods as long as 6 months.

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Customize Your Traditional 401(k)

A Traditional 401(k) allows you to mold your company’s retirement plan benefits to your goals and budget. The three main customizable areas are the Employee Match, Vesting Schedule, and Employee Eligibility. Read more below.

Employee Match

Customizing the match to your employees gives you the opportunity to build an employee benefit around your budget. Generally, a match can be anywhere between 0% and 6%, and anywhere in between.

Creating a drawn out matching schedule will help incentivize your employees to contribute towards their 401k plan, while staying within your budget.

For example, matching 25% of every 1% with a maximum deferral rate of 6% will give your employees a 1.5% match. (25% of a 6% deferral = 1.5% match)

Tip: Higher employee deferrals allow the owner and HCE (Highly Conpensated Employees) to contribute more while still passing annual compliance testing required with Traditional 401(k)s.

Vesting Schedule

One perk of the Traditional 401(k) is that it allows you to create a longer vesting schedule than what a Safe Harbor 401(k) allows. The vesting schedule is important to help incentivize employees to remain with your company, along with protecting the assets of the company if they were to leave.

The maximum limits for vesting schedules are as follows:

Cliff Vesting: The maximum allowed is a 2-yr cliff where in the third year, the employee is fully vested.

Graded Vesting: The maximum allowed is over a 5-yr time frame allowing full vesting in the 6th year.

Employee Eligibility

The discussion around employee eligibility is about when new employees are able to enroll into the plan and start contributions.

Eligibility, in terms of timeframe, can be pushed out as far as a year. If you’re offering a employee match, this could assist in protect the company’s cash flow. Once your employees start contributing, their eligible for the match

In addition, if your business has a high employee turnover, it could incentivize them to stay with the company longer when pushing out the eligibility period. It can also help with retention of assets if you have a shorter vesting schedule.

Who Should Consider a Traditional 401(k).

Business owner looking for a tailored solution.

For businesses that prioritize customization and control, a Traditional 401(k) offers the flexibility to design a retirement plan that aligns closely with specific company objectives. You can set matching and vesting schedules that are in harmony with your business’s cash flow and growth trajectory.

Custom Matching: Design your employer match to encourage employee participation or to meet specific business objectives.
Tailored Vesting: Set a vesting schedule that rewards long-term commitment and helps with employee retention.

Employers looking for enhanced compliance control.

Traditional 401ks do require adherence to certain compliance tests, but this also allows the employer greater control over the plan’s structure and contribution limits. This is ideal for companies that wish to be hands-on in the administration of their retirement plan.

Testing Requirements: Regular IRS testing ensures fairness but allows room for fine-tuning your plan each year.
Adaptability: If business needs or objectives change, the plan’s design can be updated to reflect those changes.

Businesses looking to scale.

As your business grows, a Traditional 401k can be adapted to meet the changing needs of your company and workforce. Whether it’s increasing the match percentage or updating the investment options, the plan can evolve alongside your business.

Growing Workforce: Easily adapt the plan as you hire more employees or expand into new markets.
Changing Business Goals: The plan can be tweaked as your long-term business objectives evolve.