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Traditional 401(k) Plan

A Traditional 401(k) Plan may help you with recruiting and retaining employees. The Traditional 401(k) Plan allows eligible employees to contribute a portion of their own salary to a retirement plan. Salary deferrals can be pre-tax contributions (excluded from income for Federal Income Tax purposes) or Designated Roth Contributions (after-tax contributions and qualified distributions can be tax and penalty free). Employers have flexibility in contributions they make to the plan.


  • Sole proprietorships, partnerships, limited liability companies (LLCs), or incorporated businesses, including subchapter S corporations, may establish a 401(k) plan. All eligible employees must be allowed to participate in the plan.
  • Designated Roth Contributions are an option for salary deferrals and there are no income restrictions on who may make these contributions.
  • Salary deferral contributions up to $18,500 ($24,500 for age 50 and over) in 2018.
  • Automatic Enrollment and Automatic Increase features are available to help employees save for their retirement.
  • All employee contributions are 100% vested immediately. The employer may choose from many available vesting schedules for employer contributions and the schedule applies to all employees.
  • The deadline to establish a new plan is the last day of the business' fiscal year. However, the plan should be established as early in the year as possible to allow employees to fully take advantage of elective deferral.
  • Tax-deferred growth — any investment earnings grow tax-deferred until withdrawn.
  • Generally, the 10% tax penalty on distributions applies to participants under the age of 59½. Participants will have to pay federal income tax on the distributions.


  • May be required to be 21 years old.
  • May Require up to 1,000 hours of service from the date of hire to be eligible to participate.
  • Union employees and non-resident aliens who have no U.S source of income may generally be excluded from coverage.
  • Less restrictive eligibility requirements can be established.


  • Owners may make salary deferral contributions up to $18,500 ($24,500 for age 50 and over) in 2018, either excluded from Federal Income Tax or as Designated Roth Contributions, subject to certain discrimination test.
  • There is flexibility in the amount and timing of the employer discretionary contribution.
  • Contributions can be electronically submitted after each pay period.
  • The employer may choose a fixed or discretionary matching formula, but does not have to make any contribution.
  • A discretionary contribution may also be made to the plan, subject to deductibility limits (total employer contributions up to 25% of all eligible participants' compensation may be deductible). There are several options available for the discretionary contribution.
  • Employer contributions are tax-deductible to the employer.
  • Our record keeper assists you with compliance reporting and filing the annual Form 5500.

Comparison of plan features and benefits

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Disclosures

Neither State Farm® nor its agents provide tax or legal advice.

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