401k Tag

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Should I invest in company stock in my 401k? Dallas 401k lawyer

In an article I authored back in 2010 published in the National Law Review I discussed the risks involved for both companies and employees in allowing employees to invest in company stock within their 401k plans. The company stock becomes available through an ESOP (Employee Stock Ownership Plan) within the 401k known as a KSOP. Companies can obtain tax benefits through the ESOP as well as buoy its stock. Although ESOPs are numerically most often in small, private companies, it is the larger companies that get press when the ESOP becomes a problem. When it comes to finances, everybody’s investment goals, strategies and...

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Should I contribute Roth, after-tax, or pre-tax in my 401k? Dallas employment attorney

It depends. Each option gives you a different benefit and the respective benefits will have a maximum positive impact depending on your current financial situation, retirement needs/goals and your expectations for future tax rates. Pretax 401k contributions Pre-tax contributions provide an immediate tax benefit because you do not pay taxes on income contributed to your 401k. You also get the benefit of tax-free growth in your 401k. The downside is that all of the pre-tax money in your 401k is taxable upon distribution. 401k Roth contributions Roth contributions, on the other hand, do not provide an immediate tax benefit. You pay taxes on your...

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Can my employer change the 401k plan or make an exception for me?

Generally, no. The federal regulations that govern 401k plans require that 401k plans do not discriminate against employees. Plans must have uniform rules and the rules must apply in a uniform manner. For example, if your plan permits hardship withdrawals it must establish specific rules for those distributions. Plans can establish some variances in rules across different business units, but once the rules become effective they cannot change without amending the entire plan. In order to make an exception or change the rules, the plan has change for everybody. Even when a 401k plan desires to make a change, changes often require amending...

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What is the difference between a 401k plan and a deferred compensation plan? Dallas employee benefits lawyer explains

Generally, both plan formats defer compensation because the employee has elected to defer taking cash in hand to obtain some additional benefit, such as deferring taxes on the money or investing on a tax deferred basis. Under more specific legal definitions, there is a distinction between how these different plans work. Today's post will discuss some of the key differences between these types of employer-sponsored retirement plans through the eyes of an employment law attorney. 401k plans and ERISA 401k plans are governed by the Employee Retirement Income Security Act (ERISA) along with other defined contributions plans like ESOPs. They must be available to...

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How does the 10% penalty on IRA and 401k distributions work?

Many people, especially after leaving a job, make the decision to cash out their 401k accounts. Sometimes people end up in a financial hardship where they need to liquidate retirement savings early. These distributions are almost always taxable (qualified Roth and after-tax money is not); but for most people under age of fifty-nine and a half, there is an additional 10% penalty. Taking a taxable distribution from a 401k, IRA, or pension When you take a taxable distribution from a 401k, pension, or IRA account, that is ordinary income and computed as part of your taxable income for the year. Not only...

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What is a KSOP? Explained by a Dallas Employment Attorney

KSOP is jargon used within the financial and employee benefit industries as shorthand to explain the arrangement where a 401k plan houses an ESOP of the employer’s stock as an investment option. An ESOP is an Employee Stock Ownership Plan that allows employees to purchase company stock through a retirement plan. It is an ERISA plan all on its own but also an investment option within a 401k plan along with the other common 401k investment options. What is a KSOP retirement savings plan? KSOP structures became popular among employers as a way of offering company stock without having to offer employees...

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How does an ESOP work? How does it work with a 401k plan?

An ESOP is an Employee Stock Ownership Plan. It is an ERISA-governed employee benefit plan that allows the employee to purchase shares of the employer’s stock on a tax deferred-basis. (You don’t pay taxes today but you will pay taxes when you take your money out of the plan.) ESOPs were common before the rise of 401k plans in the 1980s. Today it is common for employers to offer company stock in their 401k plans. The company stock in the 401k plan is often an ESOP within the 401k in a structure sometimes called KSOP. (For more information about KSOP plans...

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Can I use my 401k to buy a business, franchise, house, investment property, etc.? Texas QDRO lawyer explains

There are many retirement asset-funded investment and business schemes that run from taking loans to “rollover as business startup” (ROBS) plans. They have been around for many years and typically they are generally a bad idea. I discourage most would-be investors due to the legal and financial liability involved. I have had people come to my law firm from Fort Worth and Dallas looking for information about these types of 401k plans and as a Fort Worth employment lawyer I rarely find these plans a good idea. What are 401k rollover as business startup plans in Dallas-Fort Worth? These plans are concocted by financial...

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