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Main Features — Plan design determined by
employer. Generally, eligibility criteria include
attainment of age 21 and 1 year of service.
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 must pass
non-discrimination tests each year. 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 maximum dollar
amount determined by IRS each year ($12,000*
for 2003). Employer may choose to
"match" a portion of employee
deferrals. Maximum combined contributions
(employee & employer to all defined
contribution plans) for each employee's account
is the lesser of 100% of compensation or $40,000
(as indexed). Employer may deduct amounts that
do not exceed 25% of net compensation for all
employees. |
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*Catch-up contributions are allowed for
employees age 50 and over.
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Advantages:
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Flexibility in plan design; loans and hardship withdrawals may be allowed. |
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Valuable employee benefit (especially with match) |
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Reduces current taxable income to employees. |
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Contributions and certain plan expenses may be tax deductible to employer (up to legal limits). |
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Employees are responsible for retirement funding. |
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Account balance and any earnings grow tax-deferred until withdrawn. |
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