U.S. Maryland Traditional 401(k) (Business)
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2021 Maryland Traditional 401(k) (Business)
Choose an applicable year 2022 | 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
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.
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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
All State-Level 2021 Traditional 401(k) (Business) Details
Additional Tax Strategies You May Qualify For
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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