Opt-Out Plan


DEFINITION of 'Opt-Out Plan'

A type of 401(k) plan that automatically enrolls the employees of a company to save for their retirement. Eligible employees of a company with this policy are enrolled in the plan at a default contribution rate, usually around 3% of wages, and funds are directed into a default allocation. Employees can change the terms of the plan or opt out completely if they don't want to participate. This differs from a typical 401(k) in that retirement savings will continue to accumulate without any action from the participant.

Also known as an "automatic 401(k)".


Due to the complexity of some 401(k) forms and the stress of allocating the funds, some people may choose not to participate in a plan at all. An opt-out plan does this work for the employee, while still allowing him or her to change the terms as needed.

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  1. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  2. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  3. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
  4. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  5. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
  6. Who offers 401(k) plans?

    401(k) plans are one of the most common retirement plans available. A 401(k) plan must be offered by a business. These plans ... Read Full Answer >>

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