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Clients who have already set up a 401(k) and are making matching and/or discretionary contributions up to 6% of compensation can maintain the 401(k) and establish a defined benefit plan. If one of your clients with two young employees set up a 401(k) a few years ago and makes up to a 6% matching contribution, the client can now set up a new defined benefit plan and maintain matching contributions to the existing 401(k). Your client can:
- continue to make contributions up to 6% of employees income to the 401(k) for each employee, including himself and
- set up a defined benefit plan with a vesting schedule. While he must include his eligible employees in his defined benefit plan, he can establish a vesting schedule that rewards long-term employees and limits the distribution amount for short-term employees.
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