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San Diego Electrical Annuity Plan

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What is the San Diego Electrical Annuity Plan?

The San Diego Electrical Annuity Plan is a 401(k) plan, a tax-deferred retirement plan that is qualified under Section 401(k) of the Internal Revenue Code. Federal law governs the operation of the plan and the plan's rules for participation, timing and amount of contributions, investment of funds, and withdrawal or distribution of benefits.

Each employee can elect to reduce his or her wages by a certain amount (defer), and have that amount contributed to the plan. The deferred amount does not appear as taxable income on the employee's W-2 statement. Thus, the contributions are not subject to current federal or state income tax until the employees receive the money from the plan.

Advantages of a 401(k) Plan

Contributing money to a 401(k) plan before taxes immediately increases the amount employees can save for retirement, compared to saving with after-tax money. For example, if an employee in the 28% tax bracket elects to defer $500 of earnings each year, his or her federal tax savings would total $140 - an actual reduction in spendable income of only $360.

Like the contributions themselves, any interest or investment growth earned on the employee's individual account is free from federal income tax until it is distributed. Generally, distributions are available at retirement or termination in the form of a lump-sum payment.

The convenience of wage or salary reduction retirement savings through regular automatic payroll reduction makes the savings easy and routine.

401(k) vs. IRA

A 401(k) plan is better than an IRA because of the limitations on deductions for IRA contributions, and because employees can make a higher contribution to a 401(k) plan than to an IRA. A 401(k) plan enables employees to contribute up to $18,000 (adjusted periodically for cost-of-living increases) in 2016 to their tax-deferred account.

"Catch Up" Contributions

Participants age 50 and over will be allowed to make annual "catch up" contributions of $6,000 a year in 2016.  If you intend to take advantage of this "catch up" provision, contact the administrator to coordinate the contribution through your employer's payroll office.