Retirement Plans
There are several important reasons for choosing to establish a retirement plan. Whether you are a sole proprietor, partnership or a corporation, there are multiple types of tax-qualified retirement plans to meet your goals as an employer. A tax-qualified retirement plan can serve many purposes, from tax shelter advantages, to attracting and retaining qualified employees. Retirement plan design solutions require a careful review of the needs and resources of the employer/plan sponsor and participants. RetireWell Administrators’ retirement plan experts will work to ensure that your company has the best retirement plan for your needs. The following is general information about some of the most popular types of retirement programs.
Tax-Qualified Retirement Plans
A tax-qualified retirement plan must satisfy the requirements of the Internal Revenue Code in both form and operation, to include; minimum participation, minimum coverage, vesting, and funding requirements. Advantages of tax-qualified plans include:
- Employer contributions to the plan are tax-deductible.
- Employees are not taxed on the contributions and earnings until they receive the assets.
- Earnings on the investments accumulate tax-deferred, allowing contributions and earnings to compound at a faster rate.
- Employees may make pre-tax contributions to certain types of plans.
- Plan expenses are tax-deductible.
- Ability to deduct up to 25% of eligible participants’ paid compensation.
- Businesses are able to offer a cost-effective means to assist their employees in planning for their retirement.
- Attract qualified employees in a competitive job market.
- Retirement plans have become a key part of the total compensation package.
- Plan assets are generally protected from creditors.
Advantages & Benefits
401(k) plans offer many benefits, but there are also restrictions. 401(k) plans have proven to be popular with employees for several reasons. The tax deferral benefits, portability, employer matching contributions, and the increased control associated with self-direction of investments are just some of the reasons employers and/or employees favor 401(k) plans.
- Any business, whether a C Corporation, S Corporation, partnership, sole proprietorship, or self-employed, may establish a plan.
- The company sets the eligibility requirements, within certain guidelines, at the time the plan is established.
- Contributions may be made from voluntary employee salary reduction, employer match, or both.
- Employees are immediately 100% vested in their own salary reduction tax deferred contributions.
- Employee withdrawals before age 59 ½ may be subject to 10% tax penalty.
- Employees who retire any time during the calendar year in which they turn 55, or later, are not subject to the 10% penalty.
- Employers may establish a vesting schedule, within certain guidelines, for the contributions the company makes to the 401(k) plan.
- Employers are not required nor obligated to make any contribution to the 401(k) plan, although the employer may have some obligation to contribute if the plan is top-heavy.
- Excellent range of investment options available for the plan sponsor to offer within the plan.
- 401(k) plans may permit “self-directed investment accounts” and company stock purchase within the plan.
- Employee contributions to the plan and any investment gains and earnings remain tax deferred until distributed.
- This type of plan can permit loans and hardship withdrawals.
- The employer may receive tax benefits for contributions.
- Plans are subject to top-heavy and discrimination testing.
- 401(k) plans are subject to the IRS’ Form 5500 filings.
