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Main Features — Plan design determined by
employer. Generally, eligibility criteria include
attainment of age 21 and 1 year of service.
Immediate vesting of Employer Safe Harbor
contributions is required (additional employer
contributions may be subject to vesting schedule).
Withdrawals allowed only upon attainment of age 59
½, death, severance from employment, or in other
limited circumstances. Withdrawals before age 59
½ may be subject to 10% excise tax. For non-5%
owners, required minimum distributions begin by
the later of age 70 ½ or retirement. Annual
filing of IRS Form 5500 required. Plan deemed to
pass non-discrimination testing if Safe Harbor
requirements are satisfied. Employer contributions
can be made up until employer’s tax filing
deadline (including extensions).
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Annual Contributions —
Employee elective deferrals up to a maximum
dollar determined each year by the IRS ($12,000*
for 2003.) Employer must contribute to accounts
of employees under one of two IRS formulas: |
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(1) Employer matches employee salary
deferrals dollar-for-dollar up to 3% of
compensation PLUS 50% of salary deferrals
that exceed 3% of compensation but do not
exceed 5% of compensation. |
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(2) Employer makes contribution equal to
3% of employee compensation for all
eligible employees. |
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(The Plan may not impose any eligibility
restrictions on the Safe Harbor contributions
for non-highly compensated employees). Employer
contributions are subject to the $200,000
(indexed) compensation cap.
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*Catch-up contributions are allowed for
employees age 50 and over.
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Advantages:
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Loans and hardship withdrawals may be permitted. |
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Valuable employee benefit. |
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Contributions generally tax-deductible by employer. |
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Salary deferrals reduce employee current taxable income. |
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Account balance and any earnings grow tax-deferred
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