Waddell & Reed

Employer Contribution

Waddell & Reed offers employer contribution plans (or employer-sponsored plans) including SEP IRA, Profit Sharing and Defined Benefit plans. Learn about these plans and their benefits for employers and employees.

What is a Simplified Employee Pension Plan (SEP IRA)?
The SEP IRA is an alternative to more complex employer-sponsored retirement plans. It was designed for employers that 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 Options for Employers
  • 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.
  • Contribution not to exceed $52,000.
Annual Custodial Fee $18

SEP IRA Benefits

Employer Benefits

  • Employer contributions to a SEP IRA Plan 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.

Employee Benefits

  • Employer contributions are not taxed until withdrawn from the plan.
  • Earnings on plan assets are not taxed until withdrawn from the plan.

What is a Profit Sharing Plan?
A Profit Sharing Plan is an employee benefit plan established and funded by a company. The employee receives a share of company profits based on an agreed-upon formula.

Profit Sharing 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.
Employer Contributions Employer discretionary annual contribution:
  • 25 percent limit.
  • 20 percent for sole proprietors and partnerships.
  • Total maximum of $52,000.
Vesting Schedules Employer contributions may be subject to a vesting schedule if elected by the employer in the Plan Adoption Agreement.
Loan Feature Yes, if employer elects on Plan Adoption Agreement.
Employee Eligibility Requirements
  • One year with 1,000 hours of service (two years is available with 100 percent immediate vesting only).
  • 21 years old.
Contributions Due Employer contributions due by the employer’s tax filing due date, plus IRS-approved filing extension.

Profit Sharing Plan Benefits

Employer Benefits

  • Employer contributions to a qualified plan are tax deductible for the business.
  • Plan earnings are tax deferred until withdrawal.
  • Attract and retain quality employees.
  • Improved employee morale, productivity and employer/employee relations.

Employee Benefits

  • Employer contributions are tax deferred until withdrawn from the plan.
  • Earnings on plan assets are tax deferred until withdrawal.

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.
Vesting Schedules Employer contributions may be subject to a vesting schedule if elected by the employer in the Plan Adoption Agreement.
Employee Eligibility Requirements
  • One year with 1,000 hours of service.
  • 21 years old.

Defined Benefit Plan Benefits

Employer 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.
  • Attract and retain quality employees.
  • Improved employee morale, productivity and employer/employee relations.

Employee Benefits

  • Distributions may be eligible for favorable tax treatment.
  • All contributions are made by the employer.

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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