Extremely popular for employers and employees alike, a 401(k) Plan is an excellent choice for businesses, partnerships, corporations and some not-for-profit groups. Organizations of all sizes can choose from several different Modern Woodmen 401(k) Plans customized to fit their own investment, custodial and administrative needs.  

Advantages

Employer advantages
Employers can make tax-deductible contributions, subject to limitations. A 401(k) Plan is flexible in that matching and profit sharing contributions may be optional, and employers can apply a vesting schedule to contributions they make.

Employee advantages
Traditional 401(k) Plans reduce the total tax burden for employees because they allow for pretax contributions and tax-deferred growth until withdrawal, at which time they are typically taxed at ordinary income rates. Employee contributions are always 100 percent vested.

A new alternative to traditional pre-tax 401(k) contributions is the Roth 401(k). Roth 401(k) accounts may be allowed on certain 401(k) plans, allowing participants to make after-tax contributions and take qualified distributions tax-free.**

Distributions prior to age 59 1/2 may be subject to an additional 10 percent federal premature distribution penalty, unless an exception applies.

Additional information

Contributions

Tax Year 2008
Employees can make annual salary deferrals as high as $15,500*. Employees who will turn age 50 or older by the end of the calendar year can make additional catch-up contributions of $5,000* for a total of $20,500* in salary deferrals.

Subject to cost of living adjustments, employee salary reductions and employer contributions cannot exceed the lesser of 100 percent of the employee’s compensation or $46,000* per employee ($51,000* if a participant will turn age 50 or older by the end of the calendar year). Total deductible employer contributions to the plan cannot exceed 25 percent of total eligible compensation. The maximum eligible compensation per employee is $230,000*.