Businesses with Employees

Spark 401k provides full-service, flexible 401(k) plans for businesses with W2 employees. There are a number of feaures and benefits to offering a 401(k) plan:

Higher 401(k) Contribution Limits

The maximum contribution for an employee participant in 2019 is $19,000 ($25,000 if 50+ years of age).

401(k) Advantages Over Traditional IRA
401(k) Traditional IRA
Annual limit per individual (2019) $19,000
Optional profit sharing Up to 25% of W-2 payroll with a cap of $56,000 N/A
Match required No N/A
Roth Income Limit None $137,000*
Penalty-Free Access if Needed Yes, via loan No
Age 50+ catch-up amount in 2019 $6,000 $1,000

*In 2019, the contribution begins to decrease at $122K for single individuals, hitting $0 at $137K. For those filing jointly the contribution limit begins to decrease at $193K, hitting $0 at $203K.

Optional Matching and Profit Sharing Considerations

Contrary to popular belief, your company is not required to provide employees a matching contribution to offer a 401(k) plan. Company Match or Profit sharing contributions are optional; however here are some things to consider:

  • If your company is willing to offer a minimum 4% matching contribution or a 3% non-elective deferral, you may avoid IRS discrimination testing, which may allow owners and highly compensated employees to contribute the annual maximum amount of $56,000
  • Similar to matching, providing a profit sharing contribution is not required in a 401(k) plan. However, when your company is in the position to offer additional compensation, profit sharing may be a great option and the employer profit share is typically tax deductible for your company.

Tax Benefits:

Offering a 401(k) plan can provide tax benefits to both the company and to the participants.

Company Tax Benefits:

  • New Plan Tax Credit – If your company is starting its first 401(k) plan, your business may be eligible for an annual tax credit of up to $500 for the first three years for a total of up to $1,500*.
  • Matching and Profit Sharing – Any matching or profit sharing contributions made by the company to its owner and employees are tax deductible for your business. Matching and profit sharing contributions may not exceed annual IRS Caps. In 2019, the per employee cap is set at $56K (or $62K for employees over 50 years of age).

Personal Tax Benefits:

  • Lowers your and your employees’ taxable income – Pre-tax contributions to your 401(k) plan automatically lowers your taxable income in the year of the contribution. For example, let’s say this year you earn $60,000, of which you contribute $15,000 to your 401(k) plan. This contribution means that your taxable income will be reduced by your $15,000 contribution. These taxes don’t go away; they are deferred and are paid upon distribution.
  • Tax Deferred Growth – Any pre-tax contributions you make, plus any gains from investing those funds over time, will not be taxed until you start taking distributions in retirement
  • Roth 401(k) – The Roth feature of the 401(k) allows you to make after tax contributions up to the employee contribution limit into your 401(k). This means you pay taxes on those contributions now, but when withdrawn in retirement, those contributions and any potential gains from investing are tax free. Unlike a traditional Roth IRA, there are no income limits with the Roth 401(k) feature. No matter how much you earn, you can make a Roth contribution if you choose. If withdrawals are made prior to attaining the age of 59½ and holding the contributions for 5 years, then any gains can be subject to taxes and penalties – please consult your tax advisor.

Loan Feature:

Spark 401k plans offer the option to add a loan feature, which may provide funds in a pinch.

  • This enables plan participants to take a loan from their 401(k) of up to 50% of the plan balance with a maximum amount of $50,000.
  • Loan payments are made back into the 401(k) plan.