Understanding Traditional and Roth 401(k) Accounts

What is the difference between Traditional and Roth 401(k) contributions? The key difference between Traditional and Roth 401(k) contributions is how they are taxed: Traditional 401(k): Contributions are made with pre-tax dollars, reducing employees’ taxable income in the year of contribution. Taxes are paid upon withdrawal in retirement. Roth 401(k): Contributions are made with after-tax dollars, meaning employees pay taxes upfront. Earnings and withdrawals are tax-free in retirement if the ...

What is Betterment's Financial Coaching?

Betterment’s Financial Coaching offers employees unlimited one-on-one financial advice to help them navigate key financial decisions. This service provides personalized guidance on topics like retirement planning, budgeting, and long-term financial goals. Key Features: Retirement Planning – Employees receive expert guidance on maximizing their 401(k) benefits and preparing for retirement. Fiduciary Advice – Financial advisors act in the best interests of employees, ensuring unbiased and ...

Safe Harbor vs. Traditional 401(k): Key Differences

What is the difference between a Safe Harbor 401(k) and a Traditional 401(k)? A Safe Harbor 401(k) requires mandatory employer contributions that immediately vest, allowing for automatic Internal Revenue Service (“IRS”) non-discrimination testing compliance. A Traditional 401(k) allows flexible employer contributions but requires annual non-discrimination testing. Why does non-discrimination testing matter for Traditional 401(k) plans? Non-discrimination testing helps to ensure highly ...

Understanding 401(k) Employee Eligibility

When do employees become eligible to participate in a 401(k) plan? Employee eligibility for a 401(k) plan depends on the criteria set by the employer and outlined in the plan document. Common eligibility options include: Immediate Eligibility: Employees can participate as soon as they start working. Service-Based Eligibility: Participation begins after completing a certain period of service, such as a specific number of hours, months, or years. Many plans also have an age requirement, typically ...

What is 401(k) automatic escalation?

Auto-escalation is a feature that automatically increases an employee's 401(k) contribution rate by a set percentage, typically 1%, each year until reaching a predetermined maximum, often 15%. This helps employees gradually increase their retirement savings over time, as they near retirement. Can employees opt out of auto-escalation? Yes, employees can adjust their contribution rates or opt out of auto-escalation at any time, giving them control over their retirement savings strategy. How does ...

Understanding your plan document

What is a plan document? A 401(k) plan document is a formal written document required for every 401(k) retirement plan. It outlines how the plan operates, reflecting the organization's objectives in sponsoring the plan. This includes details such as eligibility requirements, contribution formulas, vesting schedules, loan provisions, and distribution rules. As regulations change or plan features are modified, the document must be updated accordingly. How do I find the plan document? Your plan ...

Understanding Vesting of Employer Contributions

What does 'vesting' mean in a 401(k) plan? Vesting refers to the percentage of employer contributions an employee owns over time. Employees always have full ownership of their own contributions, but employer contributions may follow a vesting schedule that determines when they become fully owned by the employee. What types of vesting schedules does Betterment support? Betterment supports immediate vesting for all plan tiers. Betterment supports graded and cliff vesting for Pro-level plans and ...

Understanding 401(k) Employer Matching Contributions

What is a 401(k) employer matching contribution? A 401(k) employer matching contribution is when an employer matches a portion or all of an employee’s contributions to their 401(k) retirement plan. This benefit enhances the employee's retirement savings and encourages participation in the plan. What are common types of employer matching formulas? Employers may choose from various matching formulas, including: Dollar-for-Dollar Match – The employer matches 100% of the employee's contributions up ...

What is a discretionary employer match in a 401(k) plan?

A discretionary employer match is an optional contribution an employer can make to match employee 401(k) contributions. Unlike fixed matches, discretionary matches are not required and can change from year to year. Employers can decide annually whether to provide a match, adjust the matching formula, or withhold contributions based on the company’s financial position or business goals. Because discretionary matches are not guaranteed, they must undergo non-discrimination testing each year. This ...

What is 401(k) automatic enrollment?

What is 401(k) automatic enrollment? 401(k) automatic enrollment is a feature that allows employers to enroll employees into the company's 401(k) retirement plan automatically at a default contribution rate, unless the employee chooses to opt out or select a different contribution rate. What are the benefits of automatic enrollment for employers? Automatic enrollment can lead to increased plan participation, potentially resulting in higher tax deductions if employer-matching contributions are ...

Can an employer match go into a Roth 401(k) account?

No, Betterment does not currently support employer matching contributions going into a Roth 401(k) account. While recent legislation allows employers to deposit matching contributions into Roth accounts, Betterment's system does not yet support this feature. All employer matches will be deposited into the Traditional 401(k) account, even if an employee contributes solely to a Roth 401(k). This means that while employee contributions can be designated as Roth, any employer matching contributions ...

Plan Design

How it works

What is the difference between Traditional and Roth 401(k) contributions? The key difference between Traditional and Roth 401(k) contributions is how they are taxed: Traditional 401(k): Contributions are made with pre-tax dollars, reducing employees’ taxable income in the year of contribution. Taxes are paid upon withdrawal in retirement. Roth 401(k): Contributions are made with after-tax dollars, meaning employees pay taxes upfront. Earnings and withdrawals are tax-free in retirement if the ...
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Betterment’s Financial Coaching offers employees unlimited one-on-one financial advice to help them navigate key financial decisions. This service provides personalized guidance on topics like retirement planning, budgeting, and long-term financial goals. Key Features: Retirement Planning – Employees receive expert guidance on maximizing their 401(k) benefits and preparing for retirement. Fiduciary Advice – Financial advisors act in the best interests of employees, ensuring unbiased and ...
Read More
What is the difference between a Safe Harbor 401(k) and a Traditional 401(k)? A Safe Harbor 401(k) requires mandatory employer contributions that immediately vest, allowing for automatic Internal Revenue Service (“IRS”) non-discrimination testing compliance. A Traditional 401(k) allows flexible employer contributions but requires annual non-discrimination testing. Why does non-discrimination testing matter for Traditional 401(k) plans? Non-discrimination testing helps to ensure highly ...
Read More
When do employees become eligible to participate in a 401(k) plan? Employee eligibility for a 401(k) plan depends on the criteria set by the employer and outlined in the plan document. Common eligibility options include: Immediate Eligibility: Employees can participate as soon as they start working. Service-Based Eligibility: Participation begins after completing a certain period of service, such as a specific number of hours, months, or years. Many plans also have an age requirement, typically ...
Read More
Auto-escalation is a feature that automatically increases an employee's 401(k) contribution rate by a set percentage, typically 1%, each year until reaching a predetermined maximum, often 15%. This helps employees gradually increase their retirement savings over time, as they near retirement. Can employees opt out of auto-escalation? Yes, employees can adjust their contribution rates or opt out of auto-escalation at any time, giving them control over their retirement savings strategy. How does ...
Read More
What is a plan document? A 401(k) plan document is a formal written document required for every 401(k) retirement plan. It outlines how the plan operates, reflecting the organization's objectives in sponsoring the plan. This includes details such as eligibility requirements, contribution formulas, vesting schedules, loan provisions, and distribution rules. As regulations change or plan features are modified, the document must be updated accordingly. How do I find the plan document? Your plan ...
Read More
What does 'vesting' mean in a 401(k) plan? Vesting refers to the percentage of employer contributions an employee owns over time. Employees always have full ownership of their own contributions, but employer contributions may follow a vesting schedule that determines when they become fully owned by the employee. What types of vesting schedules does Betterment support? Betterment supports immediate vesting for all plan tiers. Betterment supports graded and cliff vesting for Pro-level plans and ...
Read More
What is a 401(k) employer matching contribution? A 401(k) employer matching contribution is when an employer matches a portion or all of an employee’s contributions to their 401(k) retirement plan. This benefit enhances the employee's retirement savings and encourages participation in the plan. What are common types of employer matching formulas? Employers may choose from various matching formulas, including: Dollar-for-Dollar Match – The employer matches 100% of the employee's contributions up ...
Read More
A discretionary employer match is an optional contribution an employer can make to match employee 401(k) contributions. Unlike fixed matches, discretionary matches are not required and can change from year to year. Employers can decide annually whether to provide a match, adjust the matching formula, or withhold contributions based on the company’s financial position or business goals. Because discretionary matches are not guaranteed, they must undergo non-discrimination testing each year. This ...
Read More
What is 401(k) automatic enrollment? 401(k) automatic enrollment is a feature that allows employers to enroll employees into the company's 401(k) retirement plan automatically at a default contribution rate, unless the employee chooses to opt out or select a different contribution rate. What are the benefits of automatic enrollment for employers? Automatic enrollment can lead to increased plan participation, potentially resulting in higher tax deductions if employer-matching contributions are ...
Read More
No, Betterment does not currently support employer matching contributions going into a Roth 401(k) account. While recent legislation allows employers to deposit matching contributions into Roth accounts, Betterment's system does not yet support this feature. All employer matches will be deposited into the Traditional 401(k) account, even if an employee contributes solely to a Roth 401(k). This means that while employee contributions can be designated as Roth, any employer matching contributions ...
Read More