401(k)

IRA

Who can contribute to an account?

Any employees who meet the eligibility requirements of their employer-sponsored plans.

Anyone who has earned income for a year. Note that if you are married, your spouse’s income can be used to cover your IRA contribution.

What type of contributions can I make to my retirement account?

With a Guideline 401(k), you have the option to make pre-tax 401(k) contributions and Roth 401(k) contributions.

With a Guideline IRA, you have the option to make traditional IRA contributions and Roth IRA contributions. Note that there are income requirements to (1) deduct the traditional IRA contribution or (2) make a Roth IRA contribution.

Who contributes to the account?

You and possibly your employer if they offer an employer match or profit sharing. (If you receive an employer match or profit sharing from your company, it will be contributed as pre-tax).

Only you as it is an individual account.

How do contributions affect my income taxes?

Pre-tax 401(k): Contributions made are tax deferred and not included in your taxable income.

​Roth 401(k): Contributions are included in your taxable income in the year they are made.

Traditional IRA: Contributions made are generally tax deductible and not included in your taxable income.

Roth IRA: Contributions are included in your taxable income at the time they are made.

Does money come straight from my paycheck?

Yes, all employee 401(k) contributions are based on wages earned from payroll or through owner’s draws and deducted from your paycheck.

Generally no, you’re responsible for depositing your own funds into your account.

What's the maximum I can contribute?

The employee contribution limit is $23,000 for 2024 ($22,500 for 2023) and an additional $7,500 in “catch-up contributions” if you're over 50 years old.
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Note that the maximum is for all deferrals into any 401(k) or 403(b) regardless of plan sponsor or deferral type.

The contribution limit is $7,000 for 2024 ($6,500 for 2023) and an additional $1,000 if you're over 50 years old.
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Note that there are income requirements to (1) deduct the traditional IRA contribution or (2) make a Roth IRA contribution.

Do my earnings grow tax-deferred?

Yes, regardless of deferral type you are not taxed on earnings until they are distributed from the plan.

Yes, regardless of account type you are not taxed on earnings until they are distributed from the plan.

When I retire and start receiving distributions, how are they taxed?

Pre-tax 401(k): The amount is taxed as ordinary income.

​Roth 401(k): Roth 401(k) distributions are always tax free. The earnings on those amounts are also tax free if (1) the distribution occurs at least 5 years after the you first fund this plan’s Roth 401(k); AND (2) at least of the following are true: you are (a) at least age 59½, (b) disabled, or (c) dead.

Traditional IRA: The amount is taxed as ordinary income.

​Roth IRA: Roth IRA distributions are always tax free. The earnings on those amounts are also tax free, if (1) the distribution occurs at least 5 years after the you first fund any Roth IRA AND (2) at least one of the following are true: you are (a) at least age 59½, (b) disabled, (c) dead, or (d) a first-time homebuyer (subject to a lifetime limit of $10,000).

Are there income limitations?

No. Any eligible employee can contribute to their 401(k), regardless of how much money they make.

Yes, there are income requirements to (1) deduct the traditional IRA contribution or (2) make a Roth IRA contribution.

What protection or insurance do I have?

Generally, your full account balance is protected from creditors as long as it stays in the plan.
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Exceptions are: (1) a qualified domestic relations order; (2) IRS garnishment; (3) federal government garnishment, (4) judgements in criminal wrongdoing against the plan. In addition, for plans not covered by ERISA, state law will determine if the account is subject to creditors. However, if you declare bankruptcy, non-ERISA plan assets will be protected under federal law up to a certain amount.

Since IRAs are not qualified retirement plans under the IRS code, state law will determine if the account is subject to creditors.
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However, if you declare bankruptcy, IRA assets will be protected under federal law up to a certain amount.

When can I withdraw funds?

While still employed: Generally, you can take a distribution from a Guideline plan when you reach age 59 ½ or when you incur a hardship.
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​After you leave employment: You may request a distribution of your full account balance from a Guideline plan at any time after leaving employment.

However, if you take a distribution before you reach age 59 ½, a 10% penalty excise tax may apply to the distributed amount. See the full list of penalty exceptions here.

Traditional IRA: Yes. Find more information on RMDs from traditional IRAs here.

​Roth IRA: No, Roth IRA accounts are not subject to RMDs.

Is the account subject to required minimum distributions (RMDs)?

Pre-tax 401(k): Yes. Find more information on RMDs from pre-tax 401(k) accounts here.
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​​Roth 401(k): Starting in 2024, Roth 401(k) accounts are not subject to RMDs. (They are required for 2023.)

Traditional IRA: Yes. Find more information on RMDs from traditional IRAs here.
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​Roth IRA: No, Roth IRA accounts are not subject to RMDs.