Reviewing the Merrill Lynch 401(k) 

Retirees and would-be retirees have thousands of retirement accounts to choose from to fund their golden years. One retirement account that stands out is offered by one of the most prestigious wealth management firms: Merrill Lynch & Co.  

For retirement, this renowned wealth management firm offers the Merrill Lynch 401(k) plan, which can help investors save for their retirement or boost their retirement savings. But is Merrill Lynch’s version of the most popular retirement vehicle worth investors’ time and effort?  

How do Merrill Lynch 401(k) benefits stack up? What are the best Merrill Lynch 401(k) funds to invest in? Find the answers to these and more in this article. 

Types of Merrill Lynch 401(k) plans 

Among the many types of 401(k) plans, Merrill Lynch offers at least four. Here’s a look at the plans.

1. Traditional 401(k) 

In a traditional 401(k) plan, employees contribute a small portion of their salaries. The contributions are pre-tax, but Social Security and Medicare taxes are withheld from their gross salaries before the 401(k) contributions are taken.  

Under this plan, some employers may match a portion of the employee’s 401(k) contributions.  

Known as the 401(k) match, these employer contributions typically amount to half of the employee’s contribution, up to a maximum of 6% of the employee’s salary. In the traditional 401(k), employer matching and nonelective contributions do not incur FICA or federal income tax. 

Are you on track for your dream retirement? Traditional and Roth IRAs both can help support your goals, with a few differences – including how your contributions and withdrawals are taxed. 🧵1/3

Investing involves risk. Merrill does not provide tax advice.

— Merrill Lynch (@MerrillLynch) May 5, 2023

  

Who can offer the traditional 401(k) from Merrill Lynch?  

Employers in the public or private sector, regardless of the size of their business, can offer this plan to their employees.  

Contribution requirements of the Merrill Lynch 401(k) 

Those who choose this plan must contribute for all participants (including those who don’t contribute), make matching contributions to employees who make elective deferrals, or both. Contributions may be placed under a vesting schedule, making employee’s contributions non-forfeitable after a certain amount of time elapses.  

Contribution limits 

For 2024, the contribution limit is set at $23,000. However, employees aged 50 or older can make an additional catch-up contribution. The additional contribution limit for 2024 is $7,500. The amount of employer and employee contributions combined cannot be larger than the annual limit.  

The limit must be the lesser of 100% of the employee’s compensation or $69,000 for 2024.

Additional requirements 

In a traditional 401(k) plan, employers are required to do the annual nondiscrimination test to ensure the contributions don’t only benefit their employees with the highest salaries.  

The test compares the average salary deferrals of high-earning employees to the lower-earning employees. Employers must pass the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests to maintain their traditional 401(k) plan. Check the IRS’s website for more information on the ADP and ACP tests. 

2. Merrill Lynch Roth 401(k) 

A Roth 401(k) plan from Merrill Lynch has many similarities to its traditional 401(k). One of the main differences is that with the Roth 401(k), employers deal with after-tax deductions instead of before-tax. Employers who choose the Roth 401(k) must withhold taxes from their employee’s gross pay before deferring their wages to the 401(k) plan. 

Another difference of the Roth 401(k) is that when an employee retires, their withdrawals from the plan are tax-free. But like the traditional 401(k) plan, the annual nondiscrimination testing is also required.  

When offering a Roth 401(k) plan, this must be in a separate account from other 401(k) plans. 

Who can offer the Roth 401(k) plan from Merrill Lynch? 

Any business regardless of size can offer the Roth 401(k) plan. 

Contribution requirements of the Merrill Lynch Roth 401(k) 

Employers are not required to contribute to employees’ Roth 401(k) plans. However, they can still do a 401(k)match. 

Contribution limits 

For 2024, employees can contribute a maximum of $23,000 to their Roth 401(k) plan.  

As with the traditional IRA, those who are aged 50 or older may also contribute an additional $7,500 in 2024.  

With contributions to a Roth IRA you may see a benefit later on, because you won’t have to pay federal taxes on “qualified” withdrawals. Compare the two options: https://t.co/3xCYZ1Ozxg 🧵3/3

Investing involves risk. Merrill does not provide tax advice.

— Merrill Lynch (@MerrillLynch) May 5, 2023

 

3. Merrill Lynch Safe Harbor 401(k) 

This is a special type of 401(k) plan that automatically passes the nondiscrimination test, but with a condition: employers must contribute to an employee’s safe harbor retirement plan. 

In the safe harbor 401(k)plan, employers must contribute to all their employees’ 401(k)s, regardless of their title, compensation, or length of service. 

Who can offer the Safe Harbor 401(k) plan from Merrill Lynch? 

Businesses of any size can offer the Safe Harbor 401(k) plan. 

Contribution requirements of the Safe Harbor 401(k) plan 

Employers must make eligible matching contributions, whether basic or enhanced, or nonelective contributions. Here are their differences:  

• basic match: 100% of the first 3% of employees’ deferred compensation, plus 50% for each contribution exceeding 3% but not over 5% 
• enhanced match: 100% of the first 4% of employees’ deferred compensation 
• nonelective contribution: 3% or more of their compensation, no matter the employee deferrals 

In this type of 401(k), employer contributions are fully vested, and employees are guaranteed of their employer’s contributions to their safe harbor 401(k) plan. 

Contribution limits 

As with the traditional 401(k), the contribution limit for the safe harbor plan is up to $23,000 for 2024. The additional contribution limit is likewise $7,500. Employer and employee contributions combined cannot be larger than the annual limit. For 2024, the limit must be either 100% of the employee’s compensation or $69,000, whichever is lesser. 

4. Merrill Small Business Individual 401(k) Plan 

This is a special type of 401(k) plan that’s designed for small businesses like partnerships, owner-only, spouse-and-owner only businesses, and the self-employed. The purpose of this form of 401(k) plan is to allow small business owners to plan their retirement and manage their tax benefits.  

The Merrill Small Business 401(k) allows plan holders to defer the taxes on their profits like a traditional 401(k), but the plan holder can also convert this into a Roth 401(k).  

Contribution requirements of the Merrill Small Business 401(k) 

Plan holders can make their contributions discretionary. This means they can make contributions when their cash flow is sufficient or make no contributions when there aren’t enough earnings.  

In cases where the small business has more than one owner or the plan holder owns another business, they can still have a 401(k) plan. Unlike the safe harbor 401(k), plan testing is not required. But when plan assets go over $250,000, the plan holder must file IRS Form 5500. 

Contribution limits 

This 401(k) plan has its contribution limits at the same level as most other 401(k) plans, which is $23,000 in 2024. The contributions can be made up of pre-tax salary contributions, or in any combination of pre-tax or Roth 401(k) contributions.  

Pre-tax contributions and contributions made to the plan as the business owner reduce the plan owner’s taxable income, up to a combined amount of $69,000 annually or 25% of compensation, whichever is lesser.  

What is Merrill Lynch’s investment philosophy?  

Merrill Lynch remains one of the world’s largest wealth management firms that employs thousands of brokers, advisors, offering investment advisory, including financial planning and other services.  

The firm cannot and does not recommend any single investment philosophy or strategy for its advisors or clients. Instead, Merrill Lynch offers a broad range of investment strategies and investment tools so advisors and clients can develop an investment approach that suits them.  

These days, many Americans are taking stock of their overall financial health. When it comes to saving for retirement, are you on track? These questions can help you take stock. https://t.co/C18XYDQX7J pic.twitter.com/naOFX8MnRm

— Merrill Lynch (@MerrillLynch) April 26, 2023

A look back at Merrill Lynch’s history 

Merrill Lynch & Co., which is more formally recognized as Merrill Lynch, Pierce, Fenner & Smith Incorporated, was established in 1914. It was formerly a publicly traded US investment bank that operated independently only until the 2007-2008 financial crisis.  

Merrill Lynch & Co. primarily engaged in prime brokerage and broker-dealer transactions, with its HQ occupying all 34 floors of 250 Vesey Street, NYC. After the 2008 crisis, Bank of America Corporation acquired the firm and folded it into its securities company, Bank of America Securities Corporation or BofA Corp. Merrill-Lynch gave its nod to the Bank of America acquisition.  

The acquisition happened on the same weekend that Lehman Brothers was “allowed” to fail. Back then, this event further sent the US economy into a recessionary tailspin.  

Here are some key moments in Merill Lynch’s history: 

• In 1915, shortly after its establishment, the firm’s name changed to Merrill, Lynch & Co. At that time, the firm’s name included a comma between Merrill and Lynch, which was removed in 1938 
• The 1930s marked a period of innovation for Merrill Lynch, becoming the largest US brokerage and pioneering the use of IBM machines for record-keeping 
• Merrill Lynch was incorporated as a holding company in 1952, almost 50 years after its founding 
• On March 1, 1958, the firm’s name became “Merrill Lynch, Pierce, Fenner & Smith” and joined the New York Stock Exchange 
• The firm went public in 1971, expanding its reach globally with over $1.8 trillion in client assets 
• In 1977, Merrill Lynch introduced the cash management account (CMA), integrating brokerage services with check-writing and credit facilities 
• Significant financial challenges arose in 2007, with the firm announcing losses of $8.4 billion, leading to major asset sales to stabilize finances 
• The 2008 crisis culminated in Merrill Lynch’s merger into Bank of America, a significant move during a time that reshaped the financial industry 

Can you withdraw money from a Merrill Lynch 401(k)? 

Yes, but as with any 401(k) plan, if an investor withdraws any amount from their 401(k) account before reaching the age of 59½, a 10% early withdrawal additional tax can apply.  

As with other 401(k)s, withdrawing money early from any of these plans can jeopardize investors’ financial security in retirement. Withdrawing money from the plan before reaching the requisite results in penalties. Investors also miss out on growth opportunities.  

Some 401(k) plans offered by Merrill Lynch allow taking out loans on them, but the money must be repaid. Any 401(k) withdrawals should be a last resort; the same goes for taking out any loans.  

You may come across Merrill Lynch and Merrill Edge. While both firms are subsidiaries of the Bank of America, they are distinct entities. Watch this short video to know their differences:  

Should investors get a 401(k) from Merrill Lynch?  

The 401(k)s offered by Merrill Lynch can give several benefits to investors but can come with higher overall costs. And as with any investment, any 401(k) involves risks.  

It’s worth noting that Merrill has before-tax and Roth solo 401(k) accounts with greater flexibility for participants, such as the ability to take a loan from their plan.  

For their 401(k)s, Merrill lets clients invest in individual funds and model portfolios built by Morningstar Investment Management. The catch: the fees can be noticeably higher; businesses pay a one-time $100 setup fee, followed by $20 or $25 a month, depending on the AUM.  

Individuals pay a $3 monthly recordkeeping fee and then a fee of 0.52 percent of assets annually, covering fees for customer service and custodial services. 

Investors who don’t mind the high fees can make good use of Merrill Lynch’s wide range of products, such as: 

• CDs 
• ETFs 
• equities 
• annuities 
• mutual funds 
• money market funds 
• fixed income securities 

The Merrill Lynch 401(k) offers several plan options, each designed to meet diverse investor needs. While these plans provide various benefits for retirement savings, they also come with specific considerations such as fees and contribution limits. When choosing among these 401(k)s, investment advisors should consider their client’s risk tolerance, desired liquidity, and time horizon to guide their investment strategy.   

For more on Merrill Lynch 401(k) plans and other retirement tools, read and bookmark our retirement page. You’ll find news, features, and opinion pieces from industry experts to keep you updated.