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Note: this page is about a Maryland Traditional 401(k) (Business)
For federal Traditional 401(k) (Business), or a Traditional 401(k) (Business) in another state, click here.
2021
Maryland
Traditional 401(k) (Business)
Choose an applicable year
2022
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2021
Overview
An employer-sponsored retirement plan that allows business and employees to contribute pre-tax dollars and reduce taxable income.
Conformity Type:Rolling Conformity - Automatically update when federal IRC codes change
Commonly referred to as 401(k), employer-sponsored retirement plan and workplace retirement account
Strategy Details
Related Resources
Overview
An employer-sponsored retirement plan that allows business and employees to contribute pre-tax dollars and reduce taxable income.
Conformity Type:Rolling Conformity - Automatically update when federal IRC codes change
Commonly referred to as 401(k), employer-sponsored retirement plan and workplace retirement account
Do I Qualify for a Traditional 401(k) (Business)?
A traditional 401(k) is a workplace benefit that allows employees to make pretax contributions through payroll deductions.
2021
Maryland Traditional 401(k) (Business) Details
Traditional 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. This is a common method for business owners to reduce taxes, save for retirement, and create valuable benefits for their employees. Many states honor federal deductions to 401(k) plans, creating additional tax savings benefits at the state level.
Key traditional 401(k) benefits include the following:
- Elective salary deferrals are excluded from the employee’s taxable income (except for designated Roth deferrals).
- Employers can contribute to employees’ accounts, which creates a tax deduction for the business.
- Distributions, including earnings, are includible in taxable income at retirement (except for qualified distributions of designated Roth accounts).
Contributions limits do apply, but with the Corvee tax planning software, you can see what tax savings you can accomplish based on your specific contribution goals.
There Are Thousands of Other Tax Planning Strategies Your Clients Are Missing Out On
Learn how Corvee can help you save your clients money in taxes.
Benefits
Can offer other retirement plans
Can be a business of any size
Employees may contribute more to this type of plan than to an individual retirement account (IRA)
Good plan if cash flow is an issue
Optional participant loans and hardship withdrawals add flexibility for employees
Taxpayer receives a current-year income deduction for 401(k) contributions
Considerations
Need to file a Form 5500 annually
Administrative costs may be higher than under more basic arrangements
Must show that benefits do not discriminate in favor of the highly compensated employees, which can be complicated
Withdrawal and loan flexibility adds administrative burden for the employer
Distributions from the 401(k) are treated as ordinary income and may be subject to an additional 10% penalty if taken before age 59½
Conflicting strategies: SIMPLE IRA for Businesses, SIMPLE 401(k) for Businesses
Assumptions When Taking the Traditional 401(k) (Business)
The employer wishes to make the maximum allowable matching contribution.
Requirements to Claim the Traditional 401(k) (Business)
There are numerous rules that must be followed in order to offer a qualified traditional 401(k), including specific nondiscrimination requirements that must be performed annually to ensure the plan does not discriminate in favor of highly compensated employees.
The employer must file Form 5500 annually to report on the 401(k) plan.
There are employee communication requirements for distributions and other events.
Conflicting Strategies
StrategySIMPLEIRABusiness
StrategySIMPLE401KBusiness
Business Entities That Can Claim the Traditional 401(k) (Business)
Schedule C
Schedule F
S Corporation
C Corporation
Partnership
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All State-Level 2021 Traditional 401(k) (Business) Details
See the federal level strategy here.
To learn more about how a Traditional 401(k) (Business) is calculated in each state, click on your state below.
States with Traditional 401(k) (Business)
Arizona
Alabama
Alaska
Arkansas
California
Colorado
Connecticut
District of Columbia
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Tennessee
Utah
Vermont
Virginia
West Virginia
Wisconsin
Stay tuned for more information on these states in the future.
Nevada
Ohio
South Dakota
Texas
Washington
Wyoming
Additional Tax Strategies You May Qualify For
Those who typically qualify for a Traditional 401(k) (Business) could also save money in taxes by using the following additional tax planning strategies:
SIMPLE IRA (Business)
A salary-reduction retirement plan with few administrative requirements
SIMPLE 401(k) (Business)
A simple employer-sponsored retirement plan using pretax contributions
Profit-Sharing Plan
A retirement plan where employers make contributions for their employees
See All Strategies
The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.
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