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Common Questions Regarding 401(k) Plans

1. Why should I contribute to a 401(k) Plan?

2. How much may I contribute?

3. How do I make contributions?

4. Can I change my rate of contribution?

5. Will my contributions be taxed currently?

6. Will this reduction in compensation affect my other benefits?

7. What happens to the money I contribute?

8. How will I know the value of my account(s)?

9. When will I become “vested”?

10. Is my money available to me at all times?

11. May I borrow money from the Plan?

12. Where will my contributions be invested?

1. Why should I contribute to a 401(k) Plan?

Salary reductions under a 401(k) Plan are superior to the other options you have for accumulating your own retirement fund, namely contributing to an Individual Retirement Account (IRA) or a personal savings or other investment account. Under a 401(k) Plan, you may potentially set aside as much as $17,500* per year and reduce your taxable income by the full amount you set aside. With an IRA, you may contribute no more than $5,500 per year if under age 50, some or all of which may not be deductible on your personal Federal Income Tax Return. Any personal investment you make will not be tax deferred as is the case with the 401(k) deferrals you may choose to make.


  IRA Contribution Limits  
Year If < 50 Years of Age If > 50 Years of Age
2013 5,500 6,500
2014 5,500 6,500
2015 and Beyond Indexed to Inflation Indexed to Inflation


2. How much may I contribute?

Under current regulations, you may contribute as much as $17,500, up to the full amount of your compensation after deductions for Social Security (FICA), Federal Medicare and state disability taxes. Keep in mind that the maximum amount that may be added to your account under any defined contribution plan, such as a 401(k) Plan, may not exceed $51,000 ($56,500 after age 50). This limit applies to the combined total from all sources. You may need to coordinate your contributions with any employer contributions in order to avoid over-contributing.

  401(k) Contribution Limits  
Year If < 50 Years of Age If > 50 Years of Age
2013 17,500 23,000
2014 17,500 23,000
2015 and Beyond Indexed to Inflation Indexed to Inflation


3. How do I make contributions?

You may authorize a reduction of your compensation through regular payroll deduction by completing forms provided by your employer and the Plan Administrator. All such amounts would be contributed directly into a 401(k) account at Fidelity Investments earmarked to your name.

A 401(k) Plan provides for contributions made from voluntary salary deferrals from eligible employees’ compensation. Each employee who meets the eligibility requirements may elect to defer up to a maximum of 100% of compensation into the Plan through payroll withholding.

4. Can I change my rate of contribution?

Yes. You may increase, decrease, or discontinue your level of contribution on a quarterly basis.

5. Will my contributions be taxed currently?

Contributions will not be taxed for Federal and most State income tax purposes. Your contributions reduce your gross pay for these purposes, but not for FICA (Social Security tax) or State Disability Insurance (SDI) purposes. For example, if your gross pay is $20,000 and you decide to contribute 6% ($1,200) to the 401(k) component of the Plan, your taxable compensation for Federal and State income tax purposes would be $18,800. Your compensation for Social Security, Federal Medicare and State Disability taxes would be $20,000.

6. Will this reduction in compensation affect my other benefits?

No. Most compensation-related benefits (Social Security Income, Group Insurance, Disability Income, etc.) will continue to be based on your income before the reduction for your contribution to the 401(k) Plan.

7. What happens to the money I contribute?

Employer and Employee contributions as well as investment income and gains are held in a tax-sheltered trust fund, which is established to protect these assets from taxation as well as creditor claim. You will have an opportunity to instruct the Trustees of the Plan how you wish to have your funds invested among all the investment choices offered at Fidelity Investments.

8. How will I know the value of my account(s)?

You will receive periodic statements (at least quarterly) of your account from your investment advisor. In addition the Contract Administrator, PMZ Pension Corporation, will furnish you wish annual accounting statements and Participant statements.

9. When will I become “vested”?

Vested credit refers to the portion of your account balance that you are entitled to receive as a distribution in the event of termination of employment. You are always 100% vested in your own 401(k) deferral contributions. You will also be eligible to be vested in the contributions made by your employer according to the following vesting schedule:

Years of Service Vested Interest
1 0%
2 20%
3 40%
4 60%
5 80%
6 100%


10. Is my money available to me at all times?

Because you have been allowed to treat your contributions as non-taxable income, some restrictions will apply to the withdrawal of your funds, much in the same manner as contributions to an IRA. Upon attainment of age 59 ½, death, or in the event of disability, your funds can be withdrawn without penalty. Any distribution you receive from the 401(k) component of the Plan when you are under age 59 ½ will generally be subject to a 10% federal excise tax and 2 1/2% state excise tax, in addition to being subject to ordinary income tax rates. However, you may avoid the penalty tax if and when you terminate employment by rolling over this distribution into an IRA or another Employer sponsored qualified retirement plan. In addition, under certain conditions, you may make request a hardship withdrawal of the amount you electively deferred through the Plan.

11. May I borrow money from the Plan?

You may request a loan from the Plan Administrator of the amount not to exceed the lesser of $50,000 or 50% of your vested interest in the Plan reduced by an amount equivalent to the highest loan balance maintained during the previous twelve-month period. The loan period may not to exceed five (5) years. Loans must be adequately secured, fully amortized and repayment made at least quarterly at a reasonable rate of interest determined by the prevailing market rate.

12. Where will my contributions be invested?

Your 401(k) deferral contributions will be invested among your choice of a multitude of investment options offered at Fidelity Investments.

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