A qualified plan is an employer-sponsored employee benefit arrangement established for the purpose of providing retirement income for eligible employees. The term "qualified plan" means that the written document and the operation of the plan meet specific qualification requirements outlined in the Internal Revenue Code (IRC) Sec. 401 (a). When a plan meets these requirements the business establishing the plan and the employees benefiting from the plan are entitled to special tax consideration.

Offering retirement plans is an excellent way to attract and retain valuable employees. And helping your employees plan for retirement just got easier.
Your First WallStreet Financial Advisors representative will complete a factfinder to gather information about your business and your objectives for a retirement plan. Based on this information, a Financial Advisor will prepare a proposal for you to consider.

1. Standardized Profit Sharing Plan

Contributions to a profit sharing plan are discretionary and are usually made out of profits generated by the business (although profits are not a prerequisite). The employer is not locked into any particular contribution level from year to year, however if an employer elects to make a contribution, the same contribution percentage must be made for all eligible employees.

The maximum deductible contribution that can be made to a profit sharing plan is 25% of eligible compensation to a maximum of $41,000 for 2004. Eligible compensation is basically all of the compensation paid to the eligible plan participants during the employer's tax year including any salary deferrals. Employer contributions are not considered taxable income to employees for the year in which the contribution is made.

2. Standardized Money Purchase Pension Plan

Unlike a profit sharing plan in which the contribution level may vary from year to year, a money purchase pension plan requires the employer to fund a plan according to the percentage specified by the employer in the plan documents. If the employer elects a 15% contribution in the plan documents, she must contribute 15% for all eligible employees each and every year.

The maximum deductible contribution to a money purchase pension plan is the lesser of 25% of eligible compensation or $41,000 for 2004. Due to the EGTRRA legislation changes bringing Profit Sharing plan limits up to Money Purchase Pension limits, we expect to see a majority of the MPP plans disappear over the coming years.

3. Combined Profit Sharing and Money Purchase Pension Plan

Previously, the Combined Pension Plan provided an employer with the maximum flexibility benefits of the Profit Sharing Plan and the maximum contribution benefits of the Money Purchase Pension Plan under one trust account. However, with the EGTRRA tax law changes, the Money Purchas Plan is no longer necessary. Employers can maximize their contribution in a Profit Sharing Plan AND retain the flexibility of choosing their contribution percentage each and every year.
4. Individual(k)

The Individual(k) Plan is a 401(k) plan designed for sole-proprietors (incorporated or unincorporated) who have no common-law employees. The Individual(k) plan consists of 'employer' profit sharing contributions in addition to 'employee' salary deferrals. The $41,000 profit sharing contribution, as stated above, is 25% of compensation to a maximum. The salary deferral limit for 2004 is $13,000 with an extra $3,000 for participants age 50 or older. The salary deferral is not subject to any percentage of compensation; essentially, if you earn $13,000 - you can defer $13,000. The total Individual(k) contribution can not exceed $41,000.


John earns $50,000.
Profit Sharing contribution (25% of $50,000): $12,500
+ Salary Deferral contribution: $13,000
= $25,500 maximum Individual(k) contribution
If client is age 50 or older then their total contribution can increase to $28,500

*** Please keep in mind that the percentages given here assume an incorporated business. A slight adjustment must be made for sole proprietors. ***


Uniform Lifetime Table

IRS regulations require that you take minimum distributions from your IRA and/or other qualified retirement plans when you reach age 70 1/2. Your required minimum distribution (RMD) is calculated by dividing your previous year-end balance by your life expectancy factor. Use the Uniform Life Chart to determine your required minimum distribution if you are the original account holder of an IRA (not a beneficiary) and your sole primary beneficiary is not a spouse more than 10 years younger than you. If either of these two exceptions apply, please contact your Investment Executive for assistance in calculating your required minimum distribution

First WallStreet Financial Advisors does not provide tax or legal advice. Please consult with your own tax and legal advisors before taking any action that would have tax consequences.