Waddell & Reed

Employee and Employer Contribution

Sponsoring a retirement plan is one of the best ways you can reward employees and provide tax advantages to your business. What’s more, retirement plans can be instrumental in your employees’ financial security during retirement.

What is a SIMPLE IRA?
The Savings Incentive Match Plan for Employees (SIMPLE) was designed for employers with 100 or fewer eligible employees. A SIMPLE IRA allows employer and employee contributions and keeps plan administration responsibilities to a minimum.

SIMPLE IRA At A Glance

Who May Establish
  • All business types.
  • For profit and not-for-profit organizations with 100 or fewer employees.
Annual IRS Testing/Reporting None.
Establishment New plans must be established by October 1 of the year for which the plan is to be effective.
Employee Eligibility Requirements
  • Earned at least $5,000 in compensation in each of the previous two years.
  • Earn at least $5,000 in compensation for the current calendar year.
Excludable Employees Certain union employees or non-resident alien employees.
Employee Contributions
  • The lesser of $12,000 or 100 percent of earned income.
Catch-up Contributions
  • Up to $2,500 for participants age 50 or older.
Employer Contributions
  • Mandatory: 100 percent match on the first 3 percent of compensation deferred. The 3 percent match may be reduced as low as 1 percent in two years out of a five-year period. OR
  • Non-elective: flat 2 percent of each eligible employee’s compensation.
Annual Custodial Fee $18

SIMPLE IRA Benefits

Employer Benefits

  • Employer contributions are tax deductible.
  • Earnings on employer contributions are not taxable to the corporation.
  • Attract and retain quality employees.
  • Improved employee morale, productivity and employer/employee relations.
  • Waddell & Reed will provide a monthly billing statement for submitting the breakdown of IRA contributions for each participating employee’s account.

Employee Benefits

  • Employer contributions and employee salary deferrals are not taxed until withdrawn.
  • Earnings on plan assets are not taxed until withdrawn.
  • Employer contributes toward employee’s retirement.
  • Contribution limits are greater than those of IRAs.
  • Flexible contribution amounts.

What is a 401(k)?
A 401(k) is a defined contribution retirement plan that is established by employers for the benefit of employees. It allows employees to contribute tax-deferred income for retirement. Waddell & Reed offers 401(k) plans through our strategic alliance partnerships with Nationwide Financial and Securian Retirement Distributors, Inc.

401(k) At A Glance

Who May Establish
  • All business types.
  • For profit and not-for-profit organizations of any size.
  • Note: Governmental entities are not eligible to sponsor a 401(k) plan.
Administrator Testing Required annually.
Establishment New plans must be established by the employer's fiscal year end.
Employee Contribution Limit Maximum employee deferral is the lesser of 100 percent of income after application of FICA or ½ Self Employment tax or $17,500.
Catch-up Contributions Up to $5,500 for participants age 50 or older.
Employer Contributions 25 percent company limit on discretionary and matching contributions combined.
Vesting
  • Employer contributions may be subject to a vesting schedule if elected by the employer in the Plan Adoption Agreement.
  • Employee contributions are always 100 percent vested.
Loans Available
  • Yes, if employer elects on Plan Adoption Agreement.
Employee Eligibility Options for Employer
  • 1 year with 1,000 hours of service.
  • 21 years old.
Total Employee/Employer Maximum Contribution $52,000
Total Employee/Employer Maximum Contribution With Catch Up $57,500

401(k) Benefits

Employer Benefits

  • Full tax deduction for the business in the amount of the employer contribution.
  • ERISA protection for bankruptcy/creditor judgments.
  • Attract and retain quality employees.
  • Improved employee morale, productivity and employer/employee relations.

Employee Benefits

  • Save for retirement with pre-tax dollars.
  • Tax-deferred earnings until withdrawn.
  • Contribution limits are greater than those of IRAs.
  • Flexible contribution amounts.

What is a Safe Harbor 401(k)?
A Safe Harbor 401(k) is similar to a traditional 401(k) in that it encourages employee participation. However, a Safe Harbor must provide for employer contributions that are fully vested when made.

Safe Harbor 401(k) At A Glance

Who May Establish
  • All business types.
  • For profit and not-for-profit organizations of any size.
Administrator Testing Required annually.
Establishment New plans must be established by the employer's fiscal year end.
Employee Contribution Limit Maximum employee deferral is the lesser of 100 percent of income after application of FICA or ½ Self Employment tax or $17,500.
Catch-up Contribution Up to $5,500 for participants age 50 or older.
Employer Contributions
  • Match: 100 percent on first 3 percent of compensation plus 50 percent on next 2 percent (total of 4 percent).
  • Non-elective: flat 3 percent of each eligible employee's compensation.
Vesting
  • 100 percent vesting on all safe harbor contributions. Other employer contributions may be subject to a vesting schedule. Employee contributions are 100 percent vested.
Loans Available
  • Yes, if employer elects on Plan Adoption Agreement.
Employee Eligibility Requirements
  • 1 year with 1,000 hours of service.
  • 21 years old.
Total Employee/Employer Maximum Contribution $52,000
Total Employee/Employer Maximum Contribution With Catch Up $57,500

Safe Harbor 401(k) Benefits

Employer Benefits

  • Full tax deduction for the business in the amount of the employer contribution.
  • ERISA protection for bankruptcy/creditor judgments.
  • Contributions to a Safe Harbor 401(k) allow employers to automatically pass the ADP/ACP and top-heavy tests.
  • Attract and retain quality employees.
  • Improved employee morale, productivity and employer/employee relations.

Employee Benefits

  • Receive a mandatory contribution from the employer in the form of a match or non-elective contribution.
  • Save for retirement with pre-tax dollars.
  • Tax-deferred earnings until withdrawn.
  • Contribution limits are greater than those of IRAs.
  • Flexible contribution amounts.

What is a Payroll Deduction IRA Plan?
A Payroll Deduction IRA Plan allows employees to make regular, affordable contributions to their traditional or Roth IRA. Contributions are withdrawn from employee paychecks after taxes and invested in a Waddell & Reed IRA. Employee participation is voluntary. Payroll Deduction IRA Plan is a service employers can offer employees; it requires no employer contribution and has no expense associated with it.

Feature Traditional IRA Roth IRA
Contribution Limits (same for taxpayer and spouse) 100 percent of earned income. Up to:
  • $5,500 – single filers
  • $11,000 – joint filers
100 percent of earned income. Up to:
  • $5,500 – single filers
  • $11,000 – joint filers
Catch-up Contribution Up to $1,000 for individuals age 50 and over. Up to $1,000 for individuals age 50 and over.
Employee Eligibility Requirements Under age 70½. Any age when single and joint tax filers fall under certain AGI limits.
Deductibility
  • Fully deductible if employee is not an active participant in a qualified retirement plan (certain AGI limits may apply to joint filers).
  • Partially deductible if employee is an active participant in qualified retirement.
Nondeductible.
Distributions
  • Before age 59½. Distributions taxed as ordinary income. Ten percent penalty does not apply if distribution is used for "special purpose," such as death, permanent disability, qualified higher education expenses or a qualified first-home purchase.*
  • After age 59½. Distributions of deductible contributions – and any earnings – taxed as ordinary income.
  • Must begin at age 70½.
  • Before age 59½. Tax free if account is at least five years old and distribution is due to death, permanent disability or qualified first-time home purchase.
  • After age 59½. Tax free if Roth IRA is at least five years old.
  • Not mandatory at any age.
  • Taxable distributions: Taxed as ordinary income. 10 percent penalty does not apply if distribution is used for “special purpose,” such as qualified higher education expenses or a qualified first-home purchase.*

* A nonqualified early withdrawal before age 59 ½ may be subjected to tax and a 10 percent penalty as set by federal law.

Payroll Deduction IRA Benefits

  • Provide a retirement plan contribution opportunity for your employees.
  • No third-party administration.
  • Attract and retain quality employees.
  • Improved employee morale, productivity and employer/employee relations.
  • Waddell & Reed will provide a monthly billing statement for submitting the breakdown of IRA contributions for each participating employee’s account.

For more information, contact your Waddell & Reed financial advisor.

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