Elective Deferrals - 401(k) Plans

Your qualified plan can include a cash or deferred arrangement  - 401(k) plan under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. (As a participant in the plan, you can contribute part of your before-tax net earnings from the business.) This contribution is called an "elective deferral" because participants choose (elect) to set aside the money, and they defer the tax on the money until it is distributed to them.

In general, a qualified plan can include a 401(k) plan only if the qualified plan is one of the following plans.

• A profit-sharing plan.
• A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date.

Automatic enrollment in a 401(k) plan: Your 401(k) plan can have an automatic enrollment feature...