401(k)

The Details

A 401(k) can help attract valuable employees to your company and retain them.

Tax advantages*:
For employees:

• Traditional 401(k): Any pre-tax employee contributions, together with any employer contributions, gains and earnings in the account are not subject to federal income tax until the money is withdrawn from the account.
  
  
• Roth 401(k) option: Employee contributions are made on an after-tax basis, but all earnings and gains in the account grow tax free. Employer contributions are made as pre-tax contributions and grow on a tax-deferred basis.

For employers:

• Contributions to the plan are generally tax deductible.

Eligibility*:

• Within certain guidelines, the employer sets the eligibility requirements at the time the 401(k) plan is established.
  
  
• Employers can require employees to have at least 1 year of service and be age 21 before being eligible to participate in a 401(k).

Annual contribution limits*:

• Each employee, in 2008, can defer up to 25% of compensation or $15,500, whichever is less.
  
  
• Participants age 50 and over may be able to make an additional $5,000 in "catch up" contributions in 2008.

Withdrawing money at retirement*:

• Traditional 401(k): Begin withdrawing money after you retire, die, become disabled or terminate employment. Other distribution options may be available depending on what options the employer elects. Some distributions may be subject to a tax penalty if they are considered to be an early distribution.
  
  
• Roth 401(k): Withdraw up to the total amount of your contributions at any time without taxes or IRS penalties. Withdrawals of earnings may be tax free as long as you've been a participant in the Roth 401(k) for more than five tax years and you're over age 59 1/2. Ask your tax advisor about certain exceptions that may be available.

*WaMu Investments, Inc. doesn't provide tax advice. Not all tax advantages may be available to you. For tax-related or eligibility questions, please consult with your qualified tax advisor about your specific situation.

An investment professional will help you choose a retirement plan that meets your business needs. Talk to one of our investment professionals at a WaMu financial center near you for a free consultation.