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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 contributions is
required. 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
certain 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 amount determined by the IRS each year
($8000* 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. |
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(2) Employer makes contribution equal to
2% of employee compensation for all
eligible employees. |
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No other contributions are permitted. 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Account balance and any earnings grow tax-deferred until withdrawn.
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