Employer sponsored retirement plans can provide great value to both employers and their employees. They give employers a distinct advantage in attracting and retaining quality employees, and they provide employees with a convenient way to invest for retirement. More importantly, employer-sponsored plans offer employers and employees who participate significant tax advantages.
There are a variety of plan types available. Below are highlights of some of the more popular types that Weitzel Financial Services, Inc. offers to your business and employees.
Qualified Retirement Plans
Retirement plans that meet certain requirements under section 401(a) of the Internal Revenue Code are considered qualified retirement plans. Employer contributions under these types of plans are tax-deductible and may be subject to a vesting schedule. Participant contributions are always immediately vested. All contributions, both employer and participant, and earnings are tax-deferred until they are withdrawn.
A 401(k) plan allows employees to contribute a portion of their pretax salary to a tax-deferred retirement plan. Some companies provide a matching contribution as an extra incentive for the participants to contribute to their retirement savings. In-service hardships can be allowed, or participants can take in-service distributions beginning at age 59 ½.
Profit Sharing Plan
A profit sharing plan is popular with clients because contributions are discretionary and can be tied to company profits. Up to 25% of the covered pay can be contributed each year. In-service distributions can be made available after five years of participation or when the participant reaches age 59 ½. Hardship withdrawals are also available.
Money Purchase Plans
A money purchase plan is a pension plan that has a mandatory annual contribution. Company contributions can be as high as 25% of covered pay. The contribution formula is set by the plan terms. Contributions can be subjected to a vesting schedule. In-service distributions are generally not available until a participant reaches the plan’s normal retirement age.
Other Retirement Plans
Simplified Employee Pension Plans (SEP)
A SEP offers many of the tax benefits of the qualified plans but has few administrative expenses associated with them. SEP contributions are discretionary and can be up to 25% of pay for each eligible employee. Except for grandfathered SARSEPs, participant contributions are not allowed. All employer contributions are made to IRAs for the benefit of the eligible employees and are immediately and completely vested. Contributions and earnings grow tax-deferred until withdrawn by the participant.
Savings Incentive Match Plans for Employees (SIMPLE) IRAs
A SIMPLE IRA is a retirement plan for small businesses. The company must either match participant contributions (dollar for dollar up to 3% of pay) or make a contribution of 2% of pay for all eligible participants. Contributions are immediately and completely vested. A business cannot have more than 100 eligible employees during the preceding calendar year to sponsor a SIMPLE plan. Certain notices must be provided annually to eligible employees.
A 403(b) plan is a tax-favored retirement plan for employees of school systems, nonprofit hospitals, religious organizations, and other tax-exempt employers [501(c)(3) organizations]. Participants can make pretax contributions and some organizations match these contributions. Similar to a 401(k) plan, participant pretax contributions are immediately and completely vested, but matching contributions may be subject to a vesting schedule.
New Internal Revenue Service (IRS) regulations have significantly changed how 403(b) plans are administered. Employers must now take a more active role in overseeing their plans to ensure IRS compliance. Therefore, 403(b) plans now operate more like a 401(k) plan than an IRA.
Regardless of the type of plan, tax-deferred investing can help both employers and participants maximize retirement savings. Contact a Weitzel Financial Services, Inc. representative for more information about employer sponsored retirement plans.
Disclaimer: Weitzel FInancial Services, Inc. is a Registered Investment Advisor offering advisory services in the state of Iowa and in other jurisdictions where exempted. This communication is designed for informational purposes only. It is not intended as investment advice or as an offer or solicitation for the purchase or sale of any security or financial instrument. See Disclosures for further details. Securities products and services are offered through Weitzel Financial Services, Inc. (member FINRA).