How would I go about negotiating an employer contributed IRA when the employee turned down benefits?
My new employee waived health benefits (she already has coverage) but wants to know if we can take whatever percentage we were prepared to offer for her health-benefits, and contribute to an IRA she already has set up.
1 answer | asked Apr 24, 2017 12:39 PM [EST] | applies to District of Columbia
Answers (1)
Unless there is an unusual provision in your plan documents, there is normally no restriction on providing an employee with some benefits, but not others. If you want to make the contributions to the employee's retirement, you can, within the IRS limits.
However, IRAs are "individual retirement plans." Employers can set up 401k or SEP plans and get similar tax advantages. If the employee really wants to put the money in her IRA, then you can just pay her a bonus, pay the employment taxes on it, and let her make the deposit into her own IRA. She could get the IRA deduction, but your payment would be counted as wages.
There may be other tax consequences. You want to be careful not to exceed the IRS limits on retirement contributions. If the employee is a "highly compensated employee" (for example, by being a 5% owner, or by receiving over $110,000 a year), then additional limits or taxes may apply.
Consulting with a tax, benefits or ERISA specialist may help avoid problems down the road.
posted by Richard Renner | Apr 24, 2017 1:13 PM [EST]
However, IRAs are "individual retirement plans." Employers can set up 401k or SEP plans and get similar tax advantages. If the employee really wants to put the money in her IRA, then you can just pay her a bonus, pay the employment taxes on it, and let her make the deposit into her own IRA. She could get the IRA deduction, but your payment would be counted as wages.
There may be other tax consequences. You want to be careful not to exceed the IRS limits on retirement contributions. If the employee is a "highly compensated employee" (for example, by being a 5% owner, or by receiving over $110,000 a year), then additional limits or taxes may apply.
Consulting with a tax, benefits or ERISA specialist may help avoid problems down the road.
posted by Richard Renner | Apr 24, 2017 1:13 PM [EST]
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