Salary-Reduction Contribution

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Salary-Reduction Contribution

A contribution to an employer-sponsored plan whereby the employee does not receive a check for his/her entire salary. Rather, the employer puts a portion of the salary into the plan directly; the contribution is automatically invested for the employee's retirement. A salary reduction contribution may come before or after the employee's taxes. This determines whether or not the withdrawals after retirement are taxable. See also: IRA, 401(k).
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However, under the ACA, the maximum employer contribution the plan can offer is $500 or up to a dollar-for-dollar match of the employee's salary reduction contribution.
The Act also caps the maximum salary reduction contribution to a health flexible spending arrangement at $2,500.
While the general thrust of this rule is to require that all employees be eligible to make salary reduction contributions if the opportunity to make salary reduction contributions is offered to any employee, the rule is most likely intended to allow employers to impose a minimum, or threshold, annual salary reduction contribution for participation in a salary reduction agreement; the employer may require a minimum annual salary reduction contribution of $200.
In addition, for participants age 50 or older, the maximum salary reduction contribution may be increased to $13,000 (in 2007, adjusted annually for cost of living increases).
Their employer sponsors a 401(k) plan and they each elected to make a salary reduction contribution of $5,000 to the plan.
Their employer sponsors a SIMPLE IRA and they each elected to make a salary reduction contribution of $3,000 to the plan.
The employer also provides a cafeteria plan with employee salary reduction contribution options for HSAs, group term life insurance, and dependent care assistance.
Their employers sponsor salary reduction SEPs and they each elected to make a salary reduction contribution of $3,000 to the plan.
Increased participation will lower the plan sponsor's payroll tax liabilities, because salary reduction contribution to health FSAs are not subject to Social Security, Medicare and Federal unemployment taxes.
Their employer sponsors a TDA plan and they each elected to make a salary reduction contribution of $3,000 to the plan.
For 2009 Max can contribute $16,500 to the School District's 457 plan and also contribute $16,500 to the School District's 403(b) plan, a total salary reduction contribution of $33,000.
Top-heavy rules applicable: The top-heavy 3% minimum contribution requirement is applicable to SEPs and SARSEPs, a commonly overlooked requirement in top-heavy "salary reduction only" SARSEPs when a 3% or more salary reduction contribution by a key employee triggers a minimum 3% "profit sharing" contribution.