PLAN TYPE

MAY BE SUITABLE FOR

PLAN FEATURES

ELIGIBILITY REQUIREMENTS

PLAN CONTRIBUITON LIMITS

DISTRIBUTIONS

DEADLINES

401(K)

·         Small to large employers (tax-exempt and for-profit entities) who want to offer a salary reduction plan with a maximum number of design options

·         May be primarily employee funded

·         May include discretionary employer contributions and/or employer matching contributions

·         Flexibility in plan design

·         May allow for loans

·         Pre-tax contributions reduce employee's current taxable income

·         Vesting schedules available for employer contributions

·         Generally requires ADP/ACP nondiscrimination testing

·         Matching contribution may be used to meet top-heavy requirement, if applicable

Must include all employees who:

·         Are age 21 or older

·         Have completed one year of service (must have worked at least 1,000 hours)

May exclude certain:

·         Union employees

·         Nonresident aliens

·         Nondiscriminatory classes of employees

·         May condition eligibility of employer contributions on minimum number of hours or last day rules

·         $13,000 deferral limit (will be $14,000 in 2005)

·         Maximum employee limit is 100% of gross compensation, not to exceed $40,000 based on the first $200,000 (indexed) of compensation

·         Maximum tax-deductible employer contribution is 25% of gross eligible payroll

·         Additional "catch-up" salary deferral contributions available for employees who are at least age 50

·         Certain employees may be eligible to receive a tax credit of up to 50% (not to exceed $1,000) on salary deferral contributions

Distribution Events:

·         Attainment of the plan's normal retirement age

·         Attainment of age 59 ½

·         Financial hardship

·         Permanent disability

·         Death

·         Five or more years of participation (regular employer contributions only)

·         Plan termination without successor plan

·         Separation from service

·         Minimum distributions required at age 70 ½ or retirement, whichever is later

·         Plan must be adopted by last day of first plan year

·         Employer contributions must be made by the employer's tax-filing deadline, plus extensions for prior-year deductibility

·         Salary deferrals made only on a calendar-year basis

403(B)(7)

·         Employees of public schools and 501(c)(3) organizations

·         Primarily employee funded

·         Employer may make matching or discretionary contributions

·         Pre-tax contributions reduce employee's current taxable income

·         Generally exempt from ERISA if exclusively employee funded

·         Vesting schedule may apply to employer contributions

·         Generally, all employees willing to defer at least $200

·         Age and service requirements may apply to employer contributions

·         Maximum Exclusion Allowance (MEA) is repealed

·         $13,000 deferral limit (will be $14,000 in 2005)

·         Maximum employee limit is 100% of gross compensation not to exceed $40,000, based on the first $200,000 (indexed) of compensation

·         Additional “catch-up” salary deferral contributions available for employees who are at least age 50

·         Certain employees may be eligible to receive a tax credit of up to 50% (not to exceed $1,000) on salary deferral contributions

Distribution Events:

·         Attainment of the plan's normal retirement age

·         Financial hardship

·         Permanent disability

·         Death

·         Separation from service

·         Minimum distributions required at age 70 ½ or retirement, whichever is later

·         Salary deferrals made only on a calendar-year basis

TRADITIONAL IRA

·         Wage earning individuals who want to save for retirement

·         Non-employed spouses who file a joint tax return

·         Contributions may be tax deductible

·         Can be used in conjunction with any retirement plan

·         Beginning in 2003, individuals may make IRA contributions to their employer's qualified plan

·         Must be under age 70 ½ to contribute

·         Must have earned compensation during the year

·         Income thresholds may apply regarding deductibility of contributions if covered by a qualified plan

·         $3,000 or 100% of compensation, whichever is less 

·         Non-employed spouses may also contribute up to $3,000

·         Additional “catch-up” contributions available for individuals who are at least age 50

·         Certain individuals may be eligible to receive a tax credit of up to 50% (not to exceed $1,000) on IRA contributions

·         Distributions taken prior to age 59 ½ may be subject to 10% premature penalty tax, in addition to ordinary income tax, unless rolled over within 60 days

·         Minimum distributions are required at age 70 ½

·         Tax-filing deadline, not including extensions (usually April 15)

457 DEFERRED COMPENSATION PLAN

·         State & Local Governments and their agencies

·         State Political Subdivision and their agencies

·         Tax-Exempt Organizations (other than a governmental unit)

·         Pay for retirement

·         Pre-tax contributions mean more savings and lower federal income taxes for the participant

·         Deferred compensation accounts compound tax deferred. Over time, tax-deferred compounding can double investment returns compared to taxable investments

 

 

·         Employees or independent contractors with earned compensation from an eligible Employer. The Employer may choose to offer the plan to only highly compensated employees or to other particular groups of employees. (Non-governmental tax-exempt organizations can only maintain a 457 Plan if the plan is limited to a select group of management or highly compensated employees. This is referred to as a "Top Hat" plan)

 

·         Maximum Salary Deferral Limit:
33 1/3% of includable compensation (or 25% of gross compensation) not to exceed $7,500 (in 1997)

·         Additional "Catch-Up" contributions: If permitted by the Employer, employees may elect to increase their Salary Deferrals to compensate for prior years during which they did not make maximum deferrals. During each of the last three years ending before the employee attains normal retirement age, an employee may defer up to the lesser of $15,000, or the sum of the maximum deferral limit for prior years, minus amounts previously deferred

Distribution Events:

·         Death

·         Calendar year in which participant attains age 70 ½ 

·         Separation from service

·         Unforeseeable Emergency, if permitted by the employer

·         Generally, April 1st of the calendar year following the year in which the participant attains age 70 ½, whichever is later (subject to certain exceptions)

·         The plan may be established and funded any time during the calendar year

·         Salary deferrals for a participant may be made only with respect to compensation

·         Plans established by state and local governments (or their agencies) after August 20, 1996 must hold plan assets in trust (or custodial accounts or annuity contracts) for the exclusive benefit of participants. Plans in existence on August 20, 1996, are exempt from this trust requirement until January 1, 1999

 

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