Waddell & Reed created the new product due to changes in the Tax Relief Reconciliation Act of 2001 that increase contributions to 401(k) plans of all sizes, according to Debra Zipp, assistant vice president, retirement plans sales management at Waddell & Reed. "Due to the separation of employee and employer contributions, it is now more advantageous for owner-only employers to set up a 401(k) for themselves," Zipp said.
In the past, the self-employed were only allowed to contribute up to 15% of their compensation. The new law raises that to 25% and also allows them to contribute the maximum employer contribution. In addition, a catch-up provision for those age 50 or older allows investors to contribute an additional $1,000 each year.
