Carnegie Financial brings you complete solutions for an employer’s retirement plan needs:


An analysis of your company’s employee demographics to help determine the type of plan that will deliver the best results for you


The necessary plan documents to set-up and administer a 401(k) or profit-sharing plan


A wide range of investments from one of our trusted partners.

bullet Ongoing support and annual testing to help ensure that your plan maintains its tax-qualified status with the IRS.

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401k Basics

What is a 401k?

In simple terms, the 401k is a retirement plan in which employees are allowed to contribute money before taxes are assessed. Some employers also provide participants with matching funds to the employee's 401k account as part of their benefits package. The employee may have the option of selecting specific investment options for the money in their 401k account. Besides building retirement funds, contributing to your 401k reduces your taxable income and helps you keep more of your hard-earned money. 401ks are widely regarded as an excellent financial tool and means of building your pension for retirement.

Who can participate?

If your employer offers a retirement plan that qualifies under 401k laws and you are a full-time employee then you may participate.

How does it work?

Generally payments are auto-deducted from your paycheck into your retirement account. Your balance is invested according to the specifications made when you joined the plan. If your employer provides matching funds, this part of your account balance may not be available for some number of years after which it becomes part of your vested balance. Your 401k money is not taxed until you withdraw it, so if you've retired, you will likely be in a lower tax bracket which results in less money going to the tax man. Also your money grows faster though the power of tax-deferred compounding interest.

Since 401k contributions are typically made directly from your paycheck, saving for retirement is made easy. It is even possible to take out a loan against your 401k account balance, and the best part is that any interest that you would be paying on the loan won't go to a bank, it will be deposited into your account along with the repaid principal. Be sure that you are prepared to leave this money alone, since there is a 10% penalty for early withdrawal and you will be liable for the deferred income taxes.


(for self employed individuals and small business owners)

What is a SEP IRA?

SEP IRA (Simplified Employer Pension Plans) are retirement plans that are ideal for small business owners and self employed individuals such as independent contractors (IRS Schedule C). SEP IRA plans allow a much larger contribution (up to $40,000 annually in 2004) than a Traditional or Roth IRA with a comparable amount of paper work.

SEP IRA for a self employed individual with no employees.

Contributions of up to 25% of earned or net income up to a maximum of $40,000 annually can be made into a SEP. A contribution to a SEP IRA is a tax deductible expense.

Self employed individuals with less than $150,000 of net income who would like to contribute the full $40,000 but are limited by the contribution rules of the SEP may want to consider a Solo 401k (Individual 401k) to maximize their tax deductions.

SEP IRA for a small business owner with employees.

With a SEP, contributions are made by the employer (employees do not contribute). All eligible employees have their own individual SEP accounts and annual contributions are made by the employer to the employer's SEP as well as to any eligible employees' SEP accounts. The employer can elect to contribute between 0% to 25% of compensation and the percentage of contribution can vary annually at the employer's discretion. The employer and all eligible employees must receive the same fixed percentage. The annual contribution made by the employer is tax deductible.

Who is considered to be an eligible employee?

Employers must make contributions to employees if they meet the following 3 requirements:

  1. 21+ years old
  2. Have at least 3 years of service in last 5 years
  3. Have earned at least $450 in compensation from the employer for the year.

Employers who would like to sponsor a retirement plan for their employees but are financially unable to make contributions on their behalf may want to consider a 401k. With a 401k, employers are not required to contribute and contributions can be made solely by employees.

A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section.

U.S. Law: Title 26, Subtitle A, Chapter 1, Subchapter D, Part I, Subpart A, Section 401