EMPLOYER RETIREMENT PLANS
What is a 401(k)?
Attracting and retaining talented employees is important to any business. And providing a way to save for retirement can help you achieve this. Any type of business can set up a 401(k) plan, which is designed to let your employees defer part of their salary for retirement savings – and let you help by making optional tax-deductible matching contributions. We are here to help you understand the plan options available.
Employee contributions make up the majority of the funding. A 401(k) plan can allow larger deferral options or larger employer contributions than a SIMPLE IRA. This type of plan can be complex, and it requires an administrator for compliance, plan maintenance, record keeping, IRS Form 5500 filing and required testing.
• Participants can make the maximum salary deferral contribution.
• Participants may elect to make Roth deferral contributions.
• As the employer, you can choose whether to contribute and how much within certain limits.
• You must establish this plan by your year-end.
• You must deposit salary deferrals no later than the 15th business day of the month following the month of deferral.
• Your employer contributions may be deposited up until the business tax-filing deadline, including extension.
Simple IRA Plan
Even with an acronym like SIMPLE, the Savings Incentive Match Plan for Employees IRA can be intimidating. Wagner Financial will take the time to educate you on how it all works.
A SIMPLE IRA allows your employees to contribute to the plan through salary deferrals. You’re also responsible for making contributions to the plan.
Consider this plan if:
• You’re looking for a primarily employee-funded plan with low required employer contributions.
• You have 100 or fewer employees who have earned at least $5,000 for the previous year.
• You don’t maintain another retirement plan during any part of the calendar year.
• Administration is simple and costs may be low.
• Your required contributions as the employer are low.
• Participants may contribute on a pretax basis, up to the annual limit of $13,000 for 2019.
• Individuals age 50 or older may make catch-up contributions for 2019 up to $3,000 for a total of $16,000.
• Employer contributions are tax-deductible.All contributions are 100% vested to the employee.
• Employees of any age may participate in the plan.
• A 25% penalty tax may apply if assets are withdrawn within two years of the participant’s first contribution.
• Setup deadline: A plan cannot have an effective date later than Oct. 1 for current-year contributions.
• Contribution deadline: You must make contributions by your business’s tax-filing deadline.
• You must deposit salary deferral contributions up to 30 business days after the end of the month they were deferred.
What is a 403(b) Plan?
You work to make a difference in the lives of others – and that requires personal attention. We value one-on-one interaction and work hard to provide the personal support you need to save and plan for retirement. A 403(b) plan may be a foundation in this important goal for you.
403(b) plans are retirement savings plans that are similar to 401(k) plans and have many of the same benefits. The main difference is that 403(b) plans can only be offered by organizations exempt from federal income tax such as:
• Public schools including colleges and universities
• Nonprofit hospital and health care agencies
• Religious organizations
• Employees can make pretax salary deferrals of up to $19,000 (for 2019)
• If you’re 50 or older, you can defer up to $25,000 (with a $6,000 catch-up contribution) or 100% of compensation, whichever is less.
• Some employers choose to make contributions to their employees’ accounts.
• In addition to pretax dollars, some plans allow employees to make after-tax deferrals. This is commonly called a Roth option. So you may be able to take advantage of both options within your 403(b) plan.
• If the plan allows for Roth contributions, employees can designate part or all of their salary deferrals as after-tax Roth contributions.
Employees who participate in a 403(b) can defer part of their salary. Deferrals are subject to FICA and FUTA but not federal income tax; contributions have the potential to grow tax deferred. In addition, Roth contributions are after-tax but may be distributed tax-free.
What is a 457 Plan?
You know how important it is to really listen to your employees, students or colleagues so you can help them achieve their goals. At Wagner Financial, we follow the same philosophy. That’s why we will spend as much time as you need to understand your retirement planning options.
A 457 plan is a deferred compensation plan that lets you save for retirement with pretax salary deferrals while reducing your taxable income.
Three groups of individuals are eligible for 457 plans:
• State, county and city government workers, and public school, college or university employees
• People in upper management and highly paid employees of certain tax-exempt, nongovernmental organizations
• Top-level employees working for certain tax-exempt or governmental organizations (who qualify for what is also known as a “top hat” plan)
Keep in mind that 457 plans have contribution limits that are separate from those of other retirement plans. This means that if you’re eligible to participate in a 457 plan and another deferral program, such as a 403(b) or 401(k) plan, you can contribute the maximum amount to both plans. For example, in 2019, a public school employee can defer $19,000 into a 403(b) plan and another $18,500 into a 457(b) plan.
What is a Safe Harbor 401(k) Plan?
The last thing you need is added complexity in running your business. A Safe Harbor 401(k) can be a complicated retirement plan option – so let us take the guesswork out of it.
With a Safe Harbor 401(k), you, as the business owner, must be willing to make required contributions in the form of a match. Any size business may find these plans attractive, but take a closer look if:
• You have fewer than 25 employees.
• You are open to making required employer contributions.
A Safe Harbor 401(k) lets you contribute the maximum amount to your own account. But you must also provide a “safe harbor” match or contribution to employees’ accounts as a percentage of their compensation. This means you and your highly compensated employees can maximize tax-deferred contributions without the restrictions of a traditional plan that doesn’t require matching.
• All participants can make the maximum salary deferral contribution.
• Contributions can be pretax, after-tax (Roth deferral contributions) or both.
• Total contributions from both sources (employer and employee) may not exceed 100% of income or $56,000 per eligible participant.
• The employer is required either to match employee contributions (100% of the participants’ first 3% of salary and 50% of the next 2% of salary) or provide a non-elective contribution (3% of salary for all eligible employees).
• Employee deferral and Safe Harbor contributions are immediately vested.
• This type of plan can be complex and requires an administrator for compliance, plan maintenance, record keeping, IRS Form 5500 filing and required testing.
• Setup Deadline: You must establish the plan before contributions can be made by any participants, including owners.
• The last day to establish a plan for the current plan year is Oct. 1.
• Contribution Deadline: Participant contributions must be deposited as soon as feasible, but never later than the 15th business day following the month they were withheld.