Employee and Employer Contribution

Spon­sor­ing a retire­ment plan is one of the best ways you can reward employ­ees and pro­vide tax advan­tages to your busi­ness. What’s more, retire­ment plans can be instru­men­tal in your employ­ees’ finan­cial secu­ri­ty dur­ing retire­ment.

What is a Simple IRA?

The Sav­ings Incen­tive Match Plan for Employ­ees (SIMPLE) was designed for employ­ers with 100 or few­er eli­gi­ble employ­ees. A SIMPLE IRA allows employ­er and employ­ee con­tri­bu­tions and keeps plan admin­is­tra­tion respon­si­bil­i­ties to a min­i­mum.

Simple IRA at a glance

Who May Estab­lish
  • All busi­ness types.
  • For prof­it and not-for-prof­it orga­ni­za­tions with 100 or few­er employ­ees.
Annu­al IRS Testing/Reporting None.
Estab­lish­ment New plans must be estab­lished by Octo­ber 1 of the year for which the plan is to be effec­tive.
Employ­ee Eli­gi­bil­i­ty Require­ments
  • Earned at least $5,000 in com­pen­sa­tion in each of the pre­vi­ous two years.
  • Earn at least $5,000 in com­pen­sa­tion for the cur­rent cal­en­dar year.
Exclud­able Employ­ees Cer­tain union employ­ees or non-res­i­dent alien employ­ees.
Employ­ee Con­tri­bu­tions
  • The less­er of $12,500 or 100 per­cent of earned income.
Catch-up Con­tri­bu­tions
  • Up to $3,000 for par­tic­i­pants age 50 or old­er.
Employ­er Con­tri­bu­tions
  • Manda­to­ry: 100 per­cent match on the first 3 per­cent of com­pen­sa­tion deferred. The 3 per­cent match may be reduced as low as 1 per­cent in two years out of a five-year peri­od. OR
  • Non-elec­tive: flat 2 per­cent of each eli­gi­ble employee’s com­pen­sa­tion.
Annu­al Cus­to­di­al Fee $18

Simple IRA Benefits

Employer Benefits

  • Employ­er con­tri­bu­tions are tax deductible.
  • Earn­ings on employ­er con­tri­bu­tions are not tax­able to the cor­po­ra­tion.
  • Attract and retain qual­i­ty employ­ees.
  • Improved employ­ee morale, pro­duc­tiv­i­ty and employer/employee rela­tions.
  • Wad­dell & Reed will pro­vide a month­ly billing state­ment for sub­mit­ting the break­down of IRA con­tri­bu­tions for each par­tic­i­pat­ing employee’s account.

Employee Benefits

  • Employ­er con­tri­bu­tions and employ­ee salary defer­rals are not taxed until with­drawn.
  • Earn­ings on plan assets are not taxed until with­drawn.
  • Employ­er con­tributes toward employee’s retire­ment.
  • Con­tri­bu­tion lim­its are greater than those of IRAs.
  • Flex­i­ble con­tri­bu­tion amounts.

What is a 401(k)?

A 401(k) is a defined con­tri­bu­tion retire­ment plan that is estab­lished by employ­ers for the ben­e­fit of employ­ees. It allows employ­ees to con­tribute tax-deferred income for retire­ment. Wad­dell & Reed offers 401(k) plans through our strate­gic alliance part­ner­ships with Nation­wide Finan­cial and Secu­ri­an Retire­ment Dis­trib­u­tors, Inc.

401(k) at a Glance

Who May Estab­lish
  • All busi­ness types.
  • For prof­it and not-for-prof­it orga­ni­za­tions of any size.
  • Note: Gov­ern­men­tal enti­ties are not eli­gi­ble to spon­sor a 401(k) plan.
Admin­is­tra­tor Test­ing Required annu­al­ly.
Estab­lish­ment New plans must be estab­lished by the employer’s fis­cal year end.
Employ­ee Con­tri­bu­tion Lim­it Max­i­mum employ­ee defer­ral is the less­er of 100 per­cent of income after appli­ca­tion of FICA or ½ Self Employ­ment tax or $18,000.
Catch-up Con­tri­bu­tions Up to $6,000 for par­tic­i­pants age 50 or old­er.
Employ­er Con­tri­bu­tions 25 per­cent com­pa­ny lim­it on dis­cre­tionary and match­ing con­tri­bu­tions com­bined.
Vest­ing
  • Employ­er con­tri­bu­tions may be sub­ject to a vest­ing sched­ule if elect­ed by the employ­er in the Plan Adop­tion Agree­ment.
  • Employ­ee con­tri­bu­tions are always 100 per­cent vest­ed.
Loans Avail­able
  • Yes, if employ­er elects on Plan Adop­tion Agree­ment.
Employ­ee Eli­gi­bil­i­ty Options for Employ­er
  • 1 year with 1,000 hours of ser­vice.
  • 21 years old.
Total Employee/Employer Max­i­mum Con­tri­bu­tion $53,000
Total Employee/Employer Max­i­mum Con­tri­bu­tion With Catch Up $59,000

 401(k) Benefits

Employer Benefits

  • Full tax deduc­tion for the busi­ness in the amount of the employ­er con­tri­bu­tion.
  • ERISA pro­tec­tion for bankruptcy/creditor judg­ments.
  • Attract and retain qual­i­ty employ­ees.
  • Improved employ­ee morale, pro­duc­tiv­i­ty and employer/employee rela­tions.

Employee Benefits

  • Save for retire­ment with pre-tax dol­lars.
  • Tax-deferred earn­ings until with­drawn.
  • Con­tri­bu­tion lim­its are greater than those of IRAs.
  • Flex­i­ble con­tri­bu­tion amounts.

What is a Safe Harbor 401(k)?

A Safe Har­bor 401(k) is sim­i­lar to a tra­di­tion­al 401(k) in that it encour­ages employ­ee par­tic­i­pa­tion. How­ev­er, a Safe Har­bor must pro­vide for employ­er con­tri­bu­tions that are ful­ly vest­ed when made.

Safe Harbor 401(k) at a Glance

Who May Estab­lish
  • All busi­ness types.
  • For prof­it and not-for-prof­it orga­ni­za­tions of any size.
Admin­is­tra­tor Test­ing Required annu­al­ly.
Estab­lish­ment New plans must be estab­lished by the employer’s fis­cal year end.
Employ­ee Con­tri­bu­tion Lim­it Max­i­mum employ­ee defer­ral is the less­er of 100 per­cent of income after appli­ca­tion of FICA or ½ Self Employ­ment tax or $18,000.
Catch-up Con­tri­bu­tion Up to $6,000 for par­tic­i­pants age 50 or old­er.
Employ­er Con­tri­bu­tions
  • Match: 100 per­cent on first 3 per­cent of com­pen­sa­tion plus 50 per­cent on next 2 per­cent (total of 4 per­cent).
  • Non-elec­tive: flat 3 per­cent of each eli­gi­ble employee’s com­pen­sa­tion.
Vest­ing
  • 100 per­cent vest­ing on all safe har­bor con­tri­bu­tions. Oth­er employ­er con­tri­bu­tions may be sub­ject to a vest­ing sched­ule. Employ­ee con­tri­bu­tions are 100 per­cent vest­ed.
Loans Avail­able
  • Yes, if employ­er elects on Plan Adop­tion Agree­ment.
Employ­ee Eli­gi­bil­i­ty Options for Employ­ers
  • 1 year with 1,000 hours of ser­vice.
  • 21 years old.
Total Employee/Employer Max­i­mum Con­tri­bu­tion $53,000
Total Employee/Employer Max­i­mum Con­tri­bu­tion With Catch Up $59,000

Safe Harbor 401(k) Benefits

Employer Benefits

  • Full tax deduc­tion for the busi­ness in the amount of the employ­er con­tri­bu­tion.
  • ERISA pro­tec­tion for bankruptcy/creditor judg­ments.
  • Con­tri­bu­tions to a Safe Har­bor 401(k) allow employ­ers to auto­mat­i­cal­ly pass the ADP/ACP and top-heavy tests.
  • Attract and retain qual­i­ty employ­ees.
  • Improved employ­ee morale, pro­duc­tiv­i­ty and employer/employee rela­tions.

Employee Benefits

  • Receive a manda­to­ry con­tri­bu­tion from the employ­er in the form of a match or non-elec­tive con­tri­bu­tion.
  • Save for retire­ment with pre-tax dol­lars.
  • Tax-deferred earn­ings until with­drawn.
  • Con­tri­bu­tion lim­its are greater than those of IRAs.
  • Flex­i­ble con­tri­bu­tion amounts.

What is a Payroll Deduction IRA Plan?

A Pay­roll Deduc­tion IRA Plan allows employ­ees to make reg­u­lar, afford­able con­tri­bu­tions to their tra­di­tion­al or Roth IRA. Con­tri­bu­tions are with­drawn from employ­ee pay­checks after tax­es and invest­ed in a Wad­dell & Reed IRA. Employ­ee par­tic­i­pa­tion is vol­un­tary. Pay­roll Deduc­tion IRA Plan is a ser­vice employ­ers can offer employ­ees; it requires no employ­er con­tri­bu­tion and has no expense asso­ci­at­ed with it.

Fea­ture Tra­di­tion­al IRA Roth IRA
Con­tri­bu­tion Lim­its (same for tax­pay­er and spouse) 100 per­cent of earned income. Up to:
  • $5,500 – sin­gle fil­ers
  • $11,000 – joint fil­ers
100 per­cent of earned income. Up to:
  • $5,500 – sin­gle fil­ers
  • $11,000 – joint fil­ers
Catch-up Con­tri­bu­tion Up to $1,000 for indi­vid­u­als age 50 and over. Up to $1,000 for indi­vid­u­als age 50 and over.
Employ­ee Eli­gi­bil­i­ty Require­ments Under age 70½. Any age when sin­gle and joint tax fil­ers fall under cer­tain AGI lim­its.
Deductibil­i­ty
  • Ful­ly deductible if employ­ee is not an active par­tic­i­pant in a qual­i­fied retire­ment plan (cer­tain AGI lim­its may apply to joint fil­ers).
  • Par­tial­ly deductible if employ­ee is an active par­tic­i­pant in qual­i­fied retire­ment.
Nond­e­ductible.
Dis­tri­b­u­tions
  • Before age 59½. Dis­tri­b­u­tions taxed as ordi­nary income. Ten per­cent penal­ty does not apply if dis­tri­b­u­tion is used for “spe­cial pur­pose,” such as death, per­ma­nent dis­abil­i­ty, qual­i­fied high­er edu­ca­tion expens­es or a qual­i­fied first-home pur­chase.*
  • After age 59½. Dis­tri­b­u­tions of deductible con­tri­bu­tions – and any earn­ings – taxed as ordi­nary income.
  • Must begin at age 70½.
  • Before age 59½. Tax free if account is at least five years old and dis­tri­b­u­tion is due to death, per­ma­nent dis­abil­i­ty or qual­i­fied first-time home pur­chase.
  • After age 59½. Tax free if Roth IRA is at least five years old.
  • Not manda­to­ry at any age.
  • Tax­able dis­tri­b­u­tions: Taxed as ordi­nary income. 10 per­cent penal­ty does not apply if dis­tri­b­u­tion is used for “spe­cial pur­pose,” such as qual­i­fied high­er edu­ca­tion expens­es or a qual­i­fied first-home pur­chase.*

* A non­qual­i­fied ear­ly with­draw­al before age 59 ½ may be sub­ject­ed to tax and a 10 per­cent penal­ty as set by fed­er­al law.

Payroll Deduction IRA Benefits

  • Pro­vide a retire­ment plan con­tri­bu­tion oppor­tu­ni­ty for your employ­ees.
  • No third-par­ty admin­is­tra­tion.
  • Attract and retain qual­i­ty employ­ees.
  • Improved employ­ee morale, pro­duc­tiv­i­ty and employer/employee rela­tions.
  • Wad­dell & Reed will pro­vide a month­ly billing state­ment for sub­mit­ting the break­down of IRA con­tri­bu­tions for each par­tic­i­pat­ing employee’s account.

Con­tact us for more infor­ma­tion.