Tax Qualified Plans

 

401k
A defined contribution retirement plan that permits an employee to set aside a portion of pre-tax salary in a tax-deferred investment account chosen by the employer. Maximum contribution is $10,000 (for 1998) a year. Non-qualified 401K Plans - The same benefits as a qualified 401K plan, except it is funded with after tax dollars.

  
 

403(b)
A retirement plan that permits an employee of a non-profit organization to contribute a portion of income into a tax-sheltered fund. Benefits of the plan are: contributions to the plan reduce current taxable income in the year they are contributed, taxes on interest income are deferred, and contributions and growth are fully taxable when withdrawals are made at retirement.

  
 

SEP
This an easy to establish and administer retirement plan. Employers with 25 or fewer employees can contribute from 0% to 15% (maximum $24,000) of the employee’s salary to the SEP-IRA each year.

  
 

ESOP- Employee Stock Ownership Plan
A qualified plan that invests in stock of the employer company. With an ESOP you can:

 
 
  • Sell - privately held stock
  • Obtain - (tax-deductible) working capital
  • Create corporate ownership
 
 

Simple Plan
Employers with 100 or fewer employees. Max contributions are $6,000 a year. Employers must either match employee contributions dollar for dollar up-to 3% of the employees compensation or make a contribution for each employee of 2% of salary.

  
 

IRA
Individual Retirement Account. Anyone can establish an IRA. This is a retirement account that is funded through after-tax dollars and all income grows tax deferred until withdrawn. A deductible IRA allows a $2,000 deduction from income to reduce your current tax burden. Deductions are based on your income level. New changes allow you to contribute to an IRA even if you or your spouse has another retirement plan.

  
 

Pension & Profit Sharing Plans
A defined contribution retirement plan that permits an employee to set aside a portion of pre-tax salary in a tax-deferred investment account chosen by the employer. Maximum contribution is $10,000(for 1998) a year.

  
 

Non-Qualified Plans

 

Non-Qualified 401K
The same benefits as a qualified 401K plan, except it is funded with after tax dollars.

  
 

457 Plans
The IRS allows an exclusion from gross income for a portion of salary deferred by a participant in a state or local government. These rules also apply to employees participating in plans of tax-exempt organizations (excluding churches), and to independent contractors (e.g., physicians providing independent services to hospitals are not included in the participant's gross income until the year such amounts are paid or otherwise made available to the employee. The maximum deferrable amount is $7,500, or one-third of the employee's eligible compensation, whichever is less.

  
 

Deferred Compensation Plans
An agreement between a firm and an employee by which the employee agrees to defer receiving current earned income until it is received at retirement.

  
 

Rabbi Trusts
The trust pays out nonqualified plan benefits when they become due. A nonqualified plan associated with a properly structured rabbi trust is considered unfunded for ERISA and tax purposes. The employer is still responsible for taxes on investment gains and on trust assets.