Traditional 401(k) Plan Facts

While there are many types of retirement plans, such as the ERISA 403(b) and SIMPLE plans, the most common is the 401(k) plan. The links below provide basic information about 401(k) plans. Please refer to your plan's summary plan description and/or written policies for specific information on your retirement plan.

What is a 401(k) plan?
A 401(k) is an employer-sponsored retirement plan that allows you to put aside money from your paycheck and invest in your future. Employers may also make contributions on behalf of eligible employees. By participating in a 401(k) plan, you not only become a disciplined saver, you may also pay less in current taxes.

Taxes on traditional 401(k) plans
Tax savings can be significant now and in the future. Because your employer deducts your contribution before taxes are deducted from your paycheck, you will be taxed on a smaller gross income, reducing your current income tax. You generally do not owe taxes on your contributions or earnings until you withdraw money from the plan. You may also be in a lower tax bracket when you begin withdrawals during your retirement.

401(k) Contributions
There may be limits set by the plan on how much an individual may contribute. Additionally, the IRS sets guidelines on how much you may contribute to your 401(k) plan.

  • Employee deferrals are limited to $17,000 per calendar year in 2012 (may be indexed annually).
  • There is also a $5,500 catch-up provision in 2012 for employees age 50 or older (may be indexed annually).
  • Allocations to your account are limited to 100 percent of pay or $50,000 in 2012, indexed annually.

Some employers offer a matching contribution to their employees’ 401(k) plans. If you can, contribute at least as much as necessary to take full advantage of your employer’s match benefit. Not only is this free money for your retirement, but the hundreds of dollars your employer contributes today could be worth thousands of additional dollars for your retirement.

401(k) Investments
Your retirement savings will be invested in a group variable annuity contract purchased by your employer from the The Ohio National Life Insurance Company. You can choose from a variety of portfolio options in your 401(k) plan. Each portfolio option offers different levels of risk and return.

401(k) Participation Eligibility
401(k) plan eligibility depends on how your employer sets up the plan. Some require employees to be at least 21 years of age and complete one year of service. See your Summary Plan Description or your Human Resources department for specifics about eligibility in your company’s plan.

Vesting
The term "vesting" refers to the nonforfeitable portion of money maintained on your behalf in a retirement plan that is yours to keep if your employment ends either through retirement, disability, death or termination. Employee contributions are always vested 100 percent. However, employers may impose a vesting schedule on the contributions they make on behalf of the employee. In a standard 401(k) plan, employer matching contributions may have a maximum schedule of a three-year 100 percent cliff vesting or a six-year graded vesting. See your Human Resources department or consult your Summary Plan Description to determine the vesting schedule applicable to your retirement plan.

Changing Jobs
When you are changing employers, the last thing on your mind may be your retirement plan. However, maintaining multiple employer retirement plan accounts can make it difficult to manage and track your investments. To simplify things, you may be able to combine, or “roll over,” all of your retirement monies into your Ohio National account. Consolidating your investments allows you to easily track performance and receive only one statement. In addition, Ohio National may offer portfolio options that were unavailable through your old retirement plans.

For information on rolling over your retirement monies and other options, review Ohio National's Retirement Guide. If you choose to roll over your retirement money, please contact your Human Resources Department or your local Ohio National financial professional for the appropriate forms.

Group variable annuities are issued by The Ohio National Life Insurance Company. Product availability varies by state. Issuer not licensed to conduct business and products not distributed in AK, HI or NY.

With respect to non-registered group variable annuities, your representative can provide you with a participant disclosure form for more complete information about the contract.

Group variable annuities are long-term investment vehicles designed to accumulate money on a tax-deferred basis for retirement purposes. Premature distributions may be subject to withdrawal charges or a market value adjustment. Distributions may also be subject to ordinary income tax and, if taken prior to age 59½, a 10 percent federal tax penalty may apply. Upon retirement, group variable annuities may pay out an income stream of a series of payments or a lump sum. If you die during the accumulation or payout phase, your beneficiary may be eligible to receive any remaining account value.

There is no additional tax-deferral benefit for annuities purchased in a tax-qualified plan, which is already afforded tax-deferred status. An annuity should only be purchased in a qualified plan if you value some of the other features of the annuity and are willing to incur any additional costs associated with the annuity.

As with any investment, investing in variable portfolios involves risk, including possible loss of principal.