CH 17 401k
for 2015, the max limit on elective deferrals is
$18,000 for workers under age 50
employees age 50 and older can make an additional catch-up contribution of
$600
secion 403(b) plan: (4)
-eligible employees voluntarily invest a fixed amount of their salaries in the plan -employers may make a matching contribution -the plan can be funded by purchasing an annuity or by investing in mutual funds -the employer must purchase the annuity and it is nontransferable
profit sharing contributions (3)
-employers contributions are limited to 25% of compensation paid -for 2015, in determining the deduction limit, the annual compensation to any one employee that can be considered is limited to $265,000 -there s a 10% percent tax penalty for early withdrawal
In a Roth 401(k) plan (2)
-investment earnings accumulate on a tax free basis -distributions from the plan are income tax free if you are at least 59.5 and the account is held for at least 5 years
Indiv. 401(k) plan: (4)
-it is limited to self-employed individuals with no employees other than a spouse -for 2015, the max annual contribution is limited to 25% of compensation -in addition, the business owner can elect a salary deferral up to $18,000, which reduces taxable income -workers over age 50 can make an additional catch-up contribution of $6,000
self employed retirement plans (4)
-retirement plans for the self-employed were formerly called Keogh plans -contributions to the plan are income-tax deductible, up to certain limits -investment income accumulates on a tax-deferred basis -amounts deposited and investment earnings are not taxed until the funds are distributed
SIMPlE plan (3)
-smaller employers are exempt from most nondiscrimination and administrative rules that apply to qualified plans -for 2015, eligible employees can elect to contribute up to 100% of compensation up to a maximum of $12,500 -employers can contribute in one of two ways: through a matching option or a nonelective contribution option
Simplified employee pension (SEP) (4)
-start-up costs are low -a plan must cover all workers who are at least age 21, have workers for at least 3 of the past 5 years, and have received at least $600 in compensation -the employer must have contributed equally for all eligible employees; employees cannot contribute -there is full and immediate vesting of all employer contributions under the plan
Saver's credit tax credit (2)
-tax credits reduce the actual amount of tax owed on a dollar-for-dollar basis up to some max limit -the tax credit is a percentage of you contributions to you retirement plans and depend on your adjusted gross income
profit sharing plan: (2)
-there is no requirement that the employer must actually earn a profit to contribute to the plan -funds are distributed to the employees at retirement, death, disability, or termination of employment (only the vested portion), or after a fixed number of years
the (401(k)) plan may permit the withdrawal of funds for a hardship:
-to make payments to prevent eviction or foreclosure on your home -to pay certain nonreimbursable medical expense -to purchase a primary residence -to pay post-secondary education expenses -burial or funeral expenses -plans typically have a loan provision that allows funds to be borrowed without a tax penalty
401k details (3)
-typically, both the employer and the employees contribute, and the employer matches part of all of the employee's contributions -employees determine how the funds are invested -employees can voluntarily elect to have part of their salaries invested in the section 401k plan through an elective deferral
if funds are withdrawn before age 59.5,
a 10% tax penalty applies, with some exceptions
a profit sharing plan is
a defined-contribution plan in which the employer's contributions are typically based on the firm's profits
An individual 401(k) retirement plan is
a plan that combines a profit sharing plan with a 401(k) plan
a section 403(b) plan, or tax sheltered annuity (TSA) is
a retirement plan designed for employees of public educational systems and tax-exempt organizations
a simplified employee pension (SEP) is
a retirement plan in which the employer contributes to an IRA established for each eligible employee
In a Roth 401(k) plan, you make
contributions with after-tax dollars, and qualified distributions at retirement are received income tax free
the law no longer distinguishes between
corporate sponsors and other plan sponsors
Profit-sharing contributions can be this or this
discretionary or based on a formula
a saver's credit tax credit is designed to
encourage low- to moderate- income earners to save for retirement
403(b) in 2015, the max limit on elective deferrals for workers under age 50
is $18,000
a savings incentive match plan for employees (SIMPlE) plan is
limited to employers that employ 100 or fewer employees and do not maintain another qualified plan
Amounts contributed by the 403(b) plan by the employer are
nonforfeitable
a section 401k plan is
qualified cash or deferred arrangement (CODA) that allows eligible employees the option of receiving funds as taxable compensation or putting money into the plan on a tax-deferred basis
contributions to a 401(k) plan accumulate
tax-free, and funds are taxed as ordinary income when withdrawals are made
-a firm must satisfy an actual deferral percentage test
to prevent discrimination in favor of highly compensated employees
