401(k) plans were created in 1978 when Congress amended the Internal Revenue Code to include Section 401(k) — hence the name. This new section created a retirement savings alternative for businesses struggling to maintain high-cost pension plans, with an eye toward ensuring employees’ retirement savings were secure in the event their employers went out of business.

A 401(k) plan is a simple way to build a retirement nest-egg by making periodic contributions to a retirement savings account with each paycheck. Employees simply specify the amount to be deducted from their paycheck — either a percentage of their gross pay or a flat dollar amount — and the funds are automatically invested in their 401(k) account.

For employers, offering a 401(k) plan provides an affordable method to help ensure employees have the ability to save for their own retirement without the business having to set up and operate a costly pension plan. The employer pays the administrative costs, and has the flexibility to make additional contributions to the plan on behalf of their employees — but is not required to do so.

Today, the U.S. 401(k) system has proved so effective that other countries have made their own "401(k)" plans — despite the fact that they have no "Section 401(k)" in their tax codes.

Sure401k offers the most popular 401(k) options at the most affordable prices:

Traditional 401(k) allows employees to save for their retirement through payroll-deducted contributions, and provides employers the option to make additional contributions to their employees’ 401(k) accounts. However, due to required annual non-discrimination testing — a process developed to ensure 401(k) plans do not favor owners or highly compensated employees (HCEs) more than other employees — HCEs and business owners may have limits imposed on their annual contribution amounts.

Safe Harbor 401(k) provides the same features as a Traditional 401(k) but requires minimum annual employer contributions. A Safe Harbor plan can be designed around either a Matching formula or static 3% annual contribution, similar to a SIMPLE plan. However, this structure provides companies that may otherwise encounter difficulty passing non-discrimination testing to by-pass these annual tests — as Safe Harbor contributions satisfy the annual discrimination testing requirements.

Solo(k) affords owner-only and family-only businesses the ability to make the maximum allowable contributions to a retirement plan while providing access to accumulated balances through a loan feature. Business owners and their spouses receive the same advantages of a Traditional 401(k) plan, including both pre-tax and Roth contributions, as well as higher annual contribution limits than allowed in a SEP-IRA or SIMPLE plan.

SEP IRA (Simplified Employee Pension Individual Retirement Account) allows self-employed individuals and business owners to provide retirement benefits for themselves and their employees without large admin costs. If you are self-employed and have employees, your employees will all receive the same benefits under the same plan. Funds can be managed and invested the same way as any other IRA.

All employees — including owners — may defer up to $16,500 per year (or $22,000 per year, if 50 or older) through various forms of payroll deferral options:

Regular Deferral is a pre-tax employee contribution that is deductible in the year it is made, whereby the contributions grow tax-free. However, the accumulated balance will be taxed, upon distribution, at the individual's then-current income tax rates.

Roth Deferral is an after-tax employee contribution that is not deductible in the year it is made, whereby contributions also grow tax-free and the accumulated balance will not be taxed upon distribution.

Catch-Up Contributions may be made by individuals who are age 50 or older, whereby they may make up to an additional $5,500 annual contribution to their 401(k) account — including either Regular or Roth Deferrals.

Employers have the option to make company contributions to a 401(k) plan, which may take a variety of forms:

Fixed Company Match enables employers to match an employee’s contributions at a "fixed" rate for a simple, predictable way to help employees grow their retirement funds. This option is the most popular matching method for small businesses.

Discretionary Company Match allows an employer to match a percentage of each employee’s deferral, enabling employers the freedom to offer, raise or lower the prescribed "match" percentage on an annual basis.

Discretionary Profit Sharing affords employers the ability to make one-time or periodic contributions to employees’ 401(k) plans, even if employees are not actively contributing to their own account. Profit Sharing contributions can be structured so employers make an equal contribution to everyone, or direct the contributions to specific employees. Sure401k will prepare estimated profit sharing calculations upon your request.

For all 401(k) plans, the maximum contribution for any one person is limited by law to the lesser of $49,000 or 25% of compensation including both employee and employer contributions.

401(k) plans have become the most popular retirement savings vehicle for U.S. small businesses.

	SIMPLE IRA/401k	SEP IRA	SH 401k*	PS 401k**
$1,500 Tax Credit
Easy to Set Up & Maintain
Integrated with SurePayroll	X	X
Exclude Part-Time Employees	X	X
Optional Employer Contributions	X	X	X
Vesting on Employer Contributions	X	X
Optional ROTH Contributions	X	X
Optional Loan Feature	X	X
No Annual Administration Fees	X		X	X
No Annual Discrimination Testing				X
No Annual Tax Filing			X	X