Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ are made available through Charles Schwab & Co. Inc. ("Schwab"), a dually registered investment advisor and broker dealer. Portfolio management services are provided by Charles Schwab Investment Advisory, Inc. ("CSIA"). Schwab and CSIA are subsidiaries of The Charles Schwab Corporation.
Automatic 401(k)s are designed to encourage high participation rates among employees. Therefore, employers can attempt to enroll non-participants as often as once per year, requiring those non-participants to opt out each time if they do not want to participate. Employers can also choose to escalate participants' default contribution rate, encouraging them to save more.[34]
In the early 1970s, a group of high-earning individuals from Kodak approached Congress to allow a part of their salary to be invested in the stock market and thus be exempt from income taxes.[4] This resulted in section 401(k) being inserted in the then-current taxation regulations that allowed this to be done. The section of the Internal Revenue Code that made such 401(k) plans possible was enacted into law in 1978.[5] It was intended to allow taxpayers a break on taxes on deferred income. In 1980, a benefits consultant and attorney named Ted Benna took note of the previously obscure provision and figured out that it could be used to create a simple, tax-advantaged way to save for retirement. The client for whom he was working at the time chose not to create a 401(k) plan.[6] He later went on to install the first 401(k) plan at his own employer, the Johnson Companies[7] (today doing business as Johnson Kendall & Johnson).[8] At the time, employees could contribute 25% of their salary, up to $30,000 per year, to their employer's 401(k) plan.[9]
Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ are made available through Charles Schwab & Co. Inc. ("Schwab"), a dually registered investment advisor and broker dealer. Portfolio management services are provided by Charles Schwab Investment Advisory, Inc. ("CSIA"). Schwab and CSIA are subsidiaries of The Charles Schwab Corporation.

Employers are allowed to automatically enroll their employees in 401(k) plans, requiring employees to actively opt out if they do not want to participate (traditionally, 401(k)s required employees to opt in). Companies offering such automatic 401(k)s must choose a default investment fund and savings rate. Employees who are enrolled automatically will become investors in the default fund at the default rate, although they may select different funds and rates if they choose, or even opt out completely.[33]
A rollover IRA is very similar to a traditional IRA and gets almost identical tax treatment. However, there are key differences between a rollover IRA and a traditional IRA including how they’re established. While a traditional IRA is typically established with new contributions or direct-transfer between custodians, a rollover IRA starts by rolling funds from another retirement account.
An indirect rollover allows for the transferring of assets from a tax-deferred 401(k) plan to a traditional IRA. With this method, the funds are given to the employee via check to be deposited into their own personal account. With an indirect rollover, it is up to the employee to redeposit the funds into the new IRA within the allotted 60 day period to avoid penalty.
Generally, a 401k participant may begin to withdraw money from his or her plan after reaching the age of 59 without penalty. The Internal Revenue Code imposes severe restrictions on withdrawals of tax-deferred or Roth contributions while a person remains in service with the company and is under the age of 59. Any withdrawal that is permitted before the age of 59 is subject to an excise tax equal to ten percent of the amount distributed (on top of the ordinary income tax that has to be paid), including withdrawals to pay expenses due to a hardship, except to the extent the distribution does not exceed the amount allowable as a deduction under Internal Revenue Code section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year).[11] Amounts withdrawn are subject to ordinary income taxes to the participant.
To help ensure that companies extend their 401(k) plans to low-paid employees, an IRS rule limits the maximum deferral by the company's highly compensated employees (HCEs) based on the average deferral by the company's non-highly compensated employees (NHCEs). If the less compensated employees save more for retirement, then the HCEs are allowed to save more for retirement. This provision is enforced via "non-discrimination testing". Non-discrimination testing takes the deferral rates of HCEs and compares them to NHCEs. In 2008, an HCE was defined as an employee with compensation greater than $100,000 in 2007, or as an employee that owned more than 5% of the business at any time during the year or the preceding year.[32] In addition to the $100,000 limit for determining HCEs, employers can elect to limit the top-paid group of employees to the top 20% of employees ranked by compensation.[32] That is, for plans with the first day of the plan-year in the 2007 calendar year, HCEs are employees who earned more than $100,000 in gross compensation (also known as 'Medicare wages') in the prior year. For example, most testing done in 2009 was for the 2008 plan-year, which compared 2007 plan-year gross compensation to the $100,000 threshold in order to determine who was an HCE and who was an NHCE. The threshold was $125,000 for 2019, and is $130,000 for 2020.[28]
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