Waddell & Reed

Owner-Only/Self-Employed

Owner-only and self-employed retirement plans – Exclusive (k)®, SEP and SIMPLE IRAs, and defined-benefit plans - give business owners a tax-advantaged way to save for retirement.

What is an Exclusive (k)® Plan?
The Exclusive(k)® is a retirement savings plan specifically designed for self-employed business owners with no common-law employees.

Exclusive (k)® Plan At A Glance

Who May Establish A company who employs only the owner(s) and their spouses, if applicable, and have no common-law employees.
Administrator Testing None.
Establishment New plans must be established by the last business day of the company's fiscal year.
Employee Eligibility Requirements Owner(s) and their spouses, if the spouse is actively employed and receives W-2 income.
Excludable Employees Part-time employees (those working less than 1,000 hours per year).
Owner/Spouse Employee Contribution Limit Maximum employee deferral is the lesser of 100 percent of income or $17,500.
Catch-up Contributions Up to $5,500 for participants age 50 or older.
Employer Contributions Discretionary: Maximum of 20 percent of adjusted net business income or 25 percent of W-2 compensation after application of FICA, not to exceed $52,000 when combined with salary deferral feature. $57,500 for those age 50 and beyond.
Annual Custodial Fee $18

Exclusive(k)® Benefits

  • Generally no third-party administration fees until the assets reach $250,000 or a loan is requested.
  • Potential for higher contribution limits than with a SEP IRA or profit sharing plan.
  • Employees that work less than 1,000 hours per year can be excluded from the plan.
  • Spouses who are employed by the company can elect to participate.
  • Loan feature available.

What is a Simplified Employee Pension Plan (SEP IRA)?
The SEP IRA is an alternative to more complex employer-sponsored retirement plans. It is designed for employers who want to establish and contribute to a retirement plan for employees. It is commonly used by self-employed individuals or employers who don’t offer other qualified plans.

SEP IRA At A Glance

Who May Establish
  • All business types.
  • For-profit and not-for-profit organizations of any size.
Administrator Testing None.
Establishment New plans must be established by the employer's tax filing due date, plus IRS-approved filing extensions.
Employee Eligibility Requirements
  • 21 years old.
  • Have worked for the employer for at least three of the immediately preceding five years.
  • Have earned at least $550 (indexed for inflation) in compensation.
Excludable Employees Certain union employees or non-resident alien employees.
Employer Contributions Discretionary annually
  • Maximum is 20 percent of adjusted net business income or 25 percent of W-2 compensation.
  • Contribution not to exceed $52,000.
Annual Custodial Fee $18

SEP IRA Benefits

  • Employer contributions to a SEP IRA are tax deductible.
  • Earnings on employer contributions are not taxable to the corporation.

What is a Defined-Benefit Plan?
A defined-benefit plan is a qualified employer-sponsored retirement plan that pays employees a benefit at retirement based on an agreed-upon formula.

Defined-Benefit Plan 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.
Contributions
  • Up to $210,000.
  • Employer contributions mandatory each plan year.
Employee Eligibility Requirements
  • One year with 1,000 hours of service.
  • 21 years old.

Defined-Benefit Plan Benefits

  • Employer contributions are tax deductible for the business.
  • Contribution limits for the plan can be higher than those made to a defined contribution plan.
  • Plan earnings are tax deferred until withdrawn.

Types of Defined-Benefit Plans

  • Fixed Benefit - Retirement benefits are determined as a fixed percentage of the participant's compensation.
  • Flat Benefit - Retirement benefits are determined as a flat-dollar amount.
  • Unit Credit Benefit- Retirement benefits are determined as a fixed percentage of pay or flat-dollar amount for each year of service.
  • Cash Balance - Retirement benefits are determined by converting a hypothetical cash balance account to an annuity.

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