- Pre-tax 401k contributions are any contributions made to a 401k account from your bi-weekly gross income before any taxes are deducted. By making 401k contributions, you are getting a tax benefit now because you are lowering your current taxable income. For instance, if you earn $6,500 a month gross wage and contribute 15% of this to your employer sponsored 401(k) plan, this totals:

If you look at our section on 401(k) employer matched contributions, you know that to hire and retain good talent, and to comply with the IRS rules of fairness and equality among corporate compensation, most organizations prefer to match their employees’ 401(k) contributions by a certain percentage. The contribution limit set for employers on behalf of their employees is set at 6% of annual compensation, including bonuses.

For example for the year 2009, an Investment director making $100,000 a year can contribute $16,500 (maximum 401k contribution limit for 2009) plus receive employer matched contribution of 6% x $100,000 = $6,000 making the total ($16,500 + $6,000 = $22,500). If the director is 50 years or over, he can contribute an additional $5,500 catch up contributions, bring the total to $22,500 + $5,500 = $28,000.
- In context to: 401k Contribution Limits

With a direct rollover, the check will be made out to the financial institution that holds and maintains your account. We advise NOT to instruct your old employer to make the check out in your name, as the tax consequences and penalties for doing this are severe! Here’s how. If the check is made payable to you, your former employer will be required to withhold 20% of your account value as federal withholding tax.

As an example, if you have $100,000 in your 401(k) that is made payable to you in a check, your employer will withhold $20,000 for remittance to the government. Thus, in order to bring your balance up to $100,000 in your new account, you will have to pay from your own pocket, an additional $20,000 within 60 days of receiving the distribution. The IRS will then return the $20,000 owed to you when you file your tax return upon correct completion of your rollover.
- In context to: Direct 401k Rollover

Vesting refers to the numbers of years of work you must perform for a company before earning a non-forfeitable right to your 401(k) retirement money, in case you leave the company or get laid off. All the money you have contributed to your 401(k) plan + any employer matched contributions are 100% vested if you can withdraw all of it upon leaving the company; this is known as withdrawal of accrued benefits. As a rule of thumb, if you turn 65 years of age while still working for the same employer, you are 100% vested and can leave the company and take 100% of your accrued benefits.

For instance, if you start with a new company on March 1st, 2009 and the employer matches your 401(k) contribution by $2,500 on June 1st, 2009 and if you were to leave the company by November 30th, 2009, you may lose the $2500 employer match because you have worked for less than 1 year. In order to calculate vesting percentages in correlation with # of years of service, the Employee Retirement Income Security Act (ERISA) has put in place a 401(k) vesting schedule that should be used as a guideline. The 2 most common types of vesting schedules are the 7 year
In context to: 401k Vesting Schedules