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Taxact 2013

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Taxact 2013

Taxact 2013 4. Taxact 2013   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. Taxact 2013 Loan secured by benefits. Taxact 2013 Waiver of survivor benefits. Taxact 2013 Waiver of 30-day waiting period before annuity starting date. Taxact 2013 Involuntary cash-out of benefits not more than dollar limit. Taxact 2013 Exception for certain loans. Taxact 2013 Exception for QDRO. Taxact 2013 SIMPLE and safe harbor 401(k) plan exception. Taxact 2013 Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. Taxact 2013 Installment percentage. Taxact 2013 Extended period for making contributions. Taxact 2013 ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. Taxact 2013 Caution: Form 5500-EZ not required. Taxact 2013 Form 5500. Taxact 2013 Electronic filing of Forms 5500 and 5500-SF. Taxact 2013 Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. Taxact 2013 dol. Taxact 2013 gov/ebsa/pdf/2013-5500. Taxact 2013 pdf www. Taxact 2013 dol. Taxact 2013 gov/ebsa/pdf/2013-5500-SF. Taxact 2013 pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Taxact 2013 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Taxact 2013 1040 U. Taxact 2013 S. Taxact 2013 Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. Taxact 2013 For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. Taxact 2013 For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. Taxact 2013 R. Taxact 2013 10 plans. Taxact 2013 A sole proprietor or a partnership can set up one of these plans. Taxact 2013 A common-law employee or a partner cannot set up one of these plans. Taxact 2013 The plans described here can also be set up and maintained by employers that are corporations. Taxact 2013 All the rules discussed here apply to corporations except where specifically limited to the self-employed. Taxact 2013 The plan must be for the exclusive benefit of employees or their beneficiaries. Taxact 2013 These qualified plans can include coverage for a self-employed individual. Taxact 2013 As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Taxact 2013 The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Taxact 2013 Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. Taxact 2013 You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. Taxact 2013 Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. Taxact 2013 It provides benefits to a participant largely based on the amount contributed to that participant's account. Taxact 2013 Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. Taxact 2013 A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. Taxact 2013 Profit-sharing plan. Taxact 2013   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). Taxact 2013 A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. Taxact 2013 An employer may even make no contribution to the plan for a given year. Taxact 2013   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. Taxact 2013   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). Taxact 2013 Money purchase pension plan. Taxact 2013   Contributions to a money purchase pension plan are fixed and are not based on your business profits. Taxact 2013 For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. Taxact 2013 This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. Taxact 2013 Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. Taxact 2013 Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Taxact 2013 Actuarial assumptions and computations are required to figure these contributions. Taxact 2013 Generally, you will need continuing professional help to have a defined benefit plan. Taxact 2013 Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. Taxact 2013 Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. Taxact 2013 The following is a brief overview of important qualification rules that generally have not yet been discussed. Taxact 2013 It is not intended to be all-inclusive. Taxact 2013 See Setting Up a Qualified Plan , later. Taxact 2013 Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. Taxact 2013 A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. Taxact 2013 Plan assets must not be diverted. Taxact 2013   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. Taxact 2013 As a general rule, the assets cannot be diverted to the employer. Taxact 2013 Minimum coverage requirement must be met. Taxact 2013   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. Taxact 2013 50 employees, or The greater of: 40% of all employees, or Two employees. Taxact 2013 If there is only one employee, the plan must benefit that employee. Taxact 2013 Contributions or benefits must not discriminate. Taxact 2013   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. Taxact 2013 Contributions and benefits must not be more than certain limits. Taxact 2013   Your plan must not provide for contributions or benefits that are more than certain limits. Taxact 2013 The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. Taxact 2013 These limits are discussed later in this chapter under Contributions. Taxact 2013 Minimum vesting standard must be met. Taxact 2013   Your plan must satisfy certain requirements regarding when benefits vest. Taxact 2013 A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. Taxact 2013 A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. Taxact 2013 Special rules apply to forfeited benefit amounts. Taxact 2013 In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. Taxact 2013   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. Taxact 2013 Forfeitures must be used instead to reduce employer contributions. Taxact 2013 Participation. Taxact 2013   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. Taxact 2013 Has reached age 21. Taxact 2013 Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). Taxact 2013 A plan cannot exclude an employee because he or she has reached a specified age. Taxact 2013 Leased employee. Taxact 2013   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. Taxact 2013 These rules include those in all the following areas. Taxact 2013 Nondiscrimination in coverage, contributions, and benefits. Taxact 2013 Minimum age and service requirements. Taxact 2013 Vesting. Taxact 2013 Limits on contributions and benefits. Taxact 2013 Top-heavy plan requirements. Taxact 2013 Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. Taxact 2013 Benefit payment must begin when required. Taxact 2013   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. Taxact 2013 The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. Taxact 2013 The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. Taxact 2013 The plan year in which the participant separates from service. Taxact 2013 Early retirement. Taxact 2013   Your plan can provide for payment of retirement benefits before the normal retirement age. Taxact 2013 If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. Taxact 2013 Satisfies the service requirement for the early retirement benefit. Taxact 2013 Separates from service with a nonforfeitable right to an accrued benefit. Taxact 2013 The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. Taxact 2013 Required minimum distributions. Taxact 2013   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. Taxact 2013 See Required Distributions , under Distributions, later. Taxact 2013 Survivor benefits. Taxact 2013   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. Taxact 2013 A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. Taxact 2013 A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. Taxact 2013   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. Taxact 2013 The participant does not choose benefits in the form of a life annuity. Taxact 2013 The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. Taxact 2013 The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. Taxact 2013 Loan secured by benefits. Taxact 2013   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. Taxact 2013 Waiver of survivor benefits. Taxact 2013   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. Taxact 2013 The plan also must allow the participant to withdraw the waiver. Taxact 2013 The spouse's consent must be witnessed by a plan representative or notary public. Taxact 2013 Waiver of 30-day waiting period before annuity starting date. Taxact 2013    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. Taxact 2013   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. Taxact 2013 Involuntary cash-out of benefits not more than dollar limit. Taxact 2013   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. Taxact 2013   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. Taxact 2013 If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. Taxact 2013   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. Taxact 2013   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. Taxact 2013 A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. Taxact 2013 See Section 402(f) Notice under Distributions, later, for more details. Taxact 2013 Consolidation, merger, or transfer of assets or liabilities. Taxact 2013   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. Taxact 2013 (if the plan had then terminated). Taxact 2013 Benefits must not be assigned or alienated. Taxact 2013   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. Taxact 2013 Exception for certain loans. Taxact 2013   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. Taxact 2013 A disqualified person is defined later in this chapter under Prohibited Transactions. Taxact 2013 Exception for QDRO. Taxact 2013   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. Taxact 2013   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. Taxact 2013 Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. Taxact 2013 No benefit reduction for social security increases. Taxact 2013   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. Taxact 2013 This rule also applies to plans supplementing the benefits provided by other federal or state laws. Taxact 2013 Elective deferrals must be limited. Taxact 2013   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. Taxact 2013 See Limit on Elective Deferrals later in this chapter. Taxact 2013 Top-heavy plan requirements. Taxact 2013   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. Taxact 2013   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. Taxact 2013 Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. Taxact 2013   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. Taxact 2013 These qualification requirements for top-heavy plans are explained in section 416 and its regulations. Taxact 2013 SIMPLE and safe harbor 401(k) plan exception. Taxact 2013   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. Taxact 2013 QACAs (discussed later) also are not subject to top-heavy requirements. Taxact 2013 Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. Taxact 2013 First you adopt a written plan. Taxact 2013 Then you invest the plan assets. Taxact 2013 You, the employer, are responsible for setting up and maintaining the plan. Taxact 2013 If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. Taxact 2013 If you have employees, see Participation, under Qualification Rules, earlier. Taxact 2013 Set-up deadline. Taxact 2013   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). Taxact 2013 Credit for startup costs. Taxact 2013   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. Taxact 2013 For more information, see Credit for startup costs under Reminders, earlier. Taxact 2013 Adopting a Written Plan You must adopt a written plan. Taxact 2013 The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. Taxact 2013 Or it can be an individually designed plan. Taxact 2013 Written plan requirement. Taxact 2013   To qualify, the plan you set up must be in writing and must be communicated to your employees. Taxact 2013 The plan's provisions must be stated in the plan. Taxact 2013 It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. Taxact 2013 Master or prototype plans. Taxact 2013   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. Taxact 2013 Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). Taxact 2013 Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. Taxact 2013 Under a prototype plan, a separate trust or custodial account is established for each employer. Taxact 2013 Plan providers. Taxact 2013   The following organizations generally can provide IRS-approved master or prototype plans. Taxact 2013 Banks (including some savings and loan associations and federally insured credit unions). Taxact 2013 Trade or professional organizations. Taxact 2013 Insurance companies. Taxact 2013 Mutual funds. Taxact 2013 Individually designed plan. Taxact 2013   If you prefer, you can set up an individually designed plan to meet specific needs. Taxact 2013 Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. Taxact 2013 You may need professional help for this. Taxact 2013 See Rev. Taxact 2013 Proc. Taxact 2013 2014-6, 2014-1 I. Taxact 2013 R. Taxact 2013 B. Taxact 2013 198, available at www. Taxact 2013 irs. Taxact 2013 gov/irb/2014-1_IRB/ar10. Taxact 2013 html, as annually updated, that may help you decide whether to apply for approval. Taxact 2013 Internal Revenue Bulletins are available on the IRS website at IRS. Taxact 2013 gov They are also available at most IRS offices and at certain libraries. Taxact 2013 User fee. Taxact 2013   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. Taxact 2013 At least one of them must be a non-highly compensated employee participating in the plan. Taxact 2013 The fee does not apply to requests made by the later of the following dates. Taxact 2013 The end of the 5th plan year the plan is in effect. Taxact 2013 The end of any remedial amendment period for the plan that begins within the first 5 plan years. Taxact 2013 The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. Taxact 2013   For more information about whether the user fee applies, see Rev. Taxact 2013 Proc. Taxact 2013 2014-8, 2014-1 I. Taxact 2013 R. Taxact 2013 B. Taxact 2013 242, available at www. Taxact 2013 irs. Taxact 2013 gov/irb/2014-1_IRB/ar12. Taxact 2013 html, as may be annually updated; Notice 2003-49, 2003-32 I. Taxact 2013 R. Taxact 2013 B. Taxact 2013 294, available at www. Taxact 2013 irs. Taxact 2013 gov/irb/2003-32_IRB/ar13. Taxact 2013 html; and Notice 2011-86, 2011-45 I. Taxact 2013 R. Taxact 2013 B. Taxact 2013 698, available at www. Taxact 2013 irs. Taxact 2013 gov/irb/2011-45_IRB/ar11. Taxact 2013 html. Taxact 2013 Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. Taxact 2013 You can establish a trust or custodial account to invest the funds. Taxact 2013 You, the trust, or the custodial account can buy an annuity contract from an insurance company. Taxact 2013 Life insurance can be included only if it is incidental to the retirement benefits. Taxact 2013 You set up a trust by a legal instrument (written document). Taxact 2013 You may need professional help to do this. Taxact 2013 You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. Taxact 2013 You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. Taxact 2013 If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. Taxact 2013 Other plan requirements. Taxact 2013   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. Taxact 2013 Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. Taxact 2013 Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. Taxact 2013 For information on this funding requirement, see section 412 and its regulations. Taxact 2013 Quarterly installments of required contributions. Taxact 2013   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. Taxact 2013 If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. Taxact 2013 Due dates. Taxact 2013   The due dates for the installments are 15 days after the end of each quarter. Taxact 2013 For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). Taxact 2013 Installment percentage. Taxact 2013   Each quarterly installment must be 25% of the required annual payment. Taxact 2013 Extended period for making contributions. Taxact 2013   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. Taxact 2013 Contributions A qualified plan is generally funded by your contributions. Taxact 2013 However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. Taxact 2013 See Employee Contributions and Elective Deferrals later. Taxact 2013 Contributions deadline. Taxact 2013   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. Taxact 2013 Self-employed individual. Taxact 2013   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. Taxact 2013 Your net earnings must be from your personal services, not from your investments. Taxact 2013 If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. Taxact 2013 Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. Taxact 2013 There are also limits on the amount you can deduct. Taxact 2013 See Deduction Limits , later. Taxact 2013 Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. Taxact 2013 The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. Taxact 2013 Defined benefit plan. Taxact 2013   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. Taxact 2013 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. Taxact 2013 $205,000 ($210,000 for 2014). Taxact 2013 Defined contribution plan. Taxact 2013   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. Taxact 2013 100% of the participant's compensation. Taxact 2013 $51,000 ($52,000 for 2014). Taxact 2013   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. Taxact 2013 Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. Taxact 2013 Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. Taxact 2013 Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. Taxact 2013 See Regulations sections 1. Taxact 2013 401(k)-2 and 1. Taxact 2013 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Taxact 2013 When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. Taxact 2013 But you can apply them to the previous year if all the following requirements are met. Taxact 2013 You make them by the due date of your tax return for the previous year (plus extensions). Taxact 2013 The plan was established by the end of the previous year. Taxact 2013 The plan treats the contributions as though it had received them on the last day of the previous year. Taxact 2013 You do either of the following. Taxact 2013 You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. Taxact 2013 You deduct the contributions on your tax return for the previous year. Taxact 2013 A partnership shows contributions for partners on Form 1065. Taxact 2013 Employer's promissory note. Taxact 2013   Your promissory note made out to the plan is not a payment that qualifies for the deduction. Taxact 2013 Also, issuing this note is a prohibited transaction subject to tax. Taxact 2013 See Prohibited Transactions , later. Taxact 2013 Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Taxact 2013 The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Taxact 2013 Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. Taxact 2013 Defined contribution plans. Taxact 2013   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. Taxact 2013 If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. Taxact 2013 See Deduction Limit for Self-Employed Individuals , later. Taxact 2013   When figuring the deduction limit, the following rules apply. Taxact 2013 Elective deferrals (discussed later) are not subject to the limit. Taxact 2013 Compensation includes elective deferrals. Taxact 2013 The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). Taxact 2013 Defined benefit plans. Taxact 2013   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. Taxact 2013 Consequently, an actuary must figure your deduction limit. Taxact 2013    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. Taxact 2013 Table 4–1. Taxact 2013 Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. Taxact 2013 Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. Taxact 2013 Compensation is your net earnings from self-employment, defined in chapter 1. Taxact 2013 This definition takes into account both the following items. Taxact 2013 The deduction for the deductible part of your self-employment tax. Taxact 2013 The deduction for contributions on your behalf to the plan. Taxact 2013 The deduction for your own contributions and your net earnings depend on each other. Taxact 2013 For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. Taxact 2013 To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. Taxact 2013 Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Taxact 2013 Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Taxact 2013 For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. Taxact 2013 Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Taxact 2013 (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. Taxact 2013 ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. Taxact 2013 Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. Taxact 2013 For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. Taxact 2013 However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. Taxact 2013 See Deduction Limit for Self-Employed Individuals, earlier. Taxact 2013 The amount you carry over and deduct may be subject to the excise tax discussed next. Taxact 2013 Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. Taxact 2013 Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. Taxact 2013 In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. Taxact 2013 Special rule for self-employed individuals. Taxact 2013   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. Taxact 2013 Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. Taxact 2013 See Minimum Funding Requirement , earlier. Taxact 2013 Reporting the tax. Taxact 2013   You must report the tax on your nondeductible contributions on Form 5330. Taxact 2013 Form 5330 includes a computation of the tax. Taxact 2013 See the separate instructions for completing the form. Taxact 2013 Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. Taxact 2013 A plan with this type of arrangement is popularly known as a “401(k) plan. Taxact 2013 ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. Taxact 2013 ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. Taxact 2013 In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. Taxact 2013 A profit-sharing plan. Taxact 2013 A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. Taxact 2013 Partnership. Taxact 2013   A partnership can have a 401(k) plan. Taxact 2013 Restriction on conditions of participation. Taxact 2013   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. Taxact 2013 Matching contributions. Taxact 2013   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. Taxact 2013 For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. Taxact 2013 Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. Taxact 2013 Nonelective contributions. Taxact 2013   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. Taxact 2013 These are called nonelective contributions. Taxact 2013 Employee compensation limit. Taxact 2013   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. Taxact 2013 This limit is $260,000 in 2014. Taxact 2013 SIMPLE 401(k) plan. Taxact 2013   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. Taxact 2013 A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. Taxact 2013 For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. Taxact 2013 Distributions. Taxact 2013   Certain rules apply to distributions from 401(k) plans. Taxact 2013 See Distributions From 401(k) Plans , later. Taxact 2013 Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. Taxact 2013 This limit applies without regard to community property laws. Taxact 2013 Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. Taxact 2013 For 2013 and 2014, the basic limit on elective deferrals is $17,500. Taxact 2013 This limit applies to all salary reduction contributions and elective deferrals. Taxact 2013 If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. Taxact 2013 Catch-up contributions. Taxact 2013   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Taxact 2013 The catch-up contribution limit for 2013 and 2014 is $5,500. Taxact 2013 Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). Taxact 2013 However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Taxact 2013 The catch-up contribution limit. Taxact 2013 The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Taxact 2013 Treatment of contributions. Taxact 2013   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. Taxact 2013 Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. Taxact 2013 Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. Taxact 2013 Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Taxact 2013 Forfeiture. Taxact 2013   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. Taxact 2013 Reporting on Form W-2. Taxact 2013   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Taxact 2013 You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Taxact 2013 You must also include them in box 12. Taxact 2013 Mark the “Retirement plan” checkbox in box 13. Taxact 2013 For more information, see the Form W-2 instructions. Taxact 2013 Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. Taxact 2013 Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. Taxact 2013 These contributions are elective deferrals. Taxact 2013 An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). Taxact 2013 For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. Taxact 2013 Eligible automatic contribution arrangement. Taxact 2013   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. Taxact 2013 This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). Taxact 2013 There is no required deferral percentage. Taxact 2013 Withdrawals. Taxact 2013   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. Taxact 2013 The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. Taxact 2013 The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. Taxact 2013   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. Taxact 2013 The additional 10% tax on early distributions will not apply to the distribution. Taxact 2013 Notice requirement. Taxact 2013   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. Taxact 2013 The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. Taxact 2013 The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. Taxact 2013 The notice also must explain how contributions will be invested in the absence of an investment election by the employee. Taxact 2013 Qualified automatic contribution arrangement. Taxact 2013    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. Taxact 2013 It contains an automatic enrollment feature, and mandatory employer contributions are required. Taxact 2013 If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). Taxact 2013 Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. Taxact 2013 Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. Taxact 2013 In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). Taxact 2013 If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. Taxact 2013 It must be applied uniformly. Taxact 2013 It must not exceed 10%. Taxact 2013 It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. Taxact 2013 It must increase to at least 4% in the following plan year. Taxact 2013 It must increase to at least 5% in the following plan year. Taxact 2013 It must increase to at least 6% in subsequent plan years. Taxact 2013 Matching or nonelective contributions. Taxact 2013   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. Taxact 2013 Matching contributions. Taxact 2013 You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. Taxact 2013 An amount equal to 100% of elective deferrals, up to 1% of compensation. Taxact 2013 An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. Taxact 2013 Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. Taxact 2013 The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Taxact 2013 Nonelective contributions. Taxact 2013 You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. Taxact 2013 Vesting requirements. Taxact 2013   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. Taxact 2013 These contributions are subject to special withdrawal restrictions, discussed later. Taxact 2013 Notice requirements. Taxact 2013   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. Taxact 2013 The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. Taxact 2013 The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. Taxact 2013 Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. Taxact 2013 The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. Taxact 2013 Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. Taxact 2013 He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. Taxact 2013 The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. Taxact 2013 Excess withdrawn by April 15. Taxact 2013   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. Taxact 2013 However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. Taxact 2013 The distribution is not subject to the additional 10% tax on early distributions. Taxact 2013   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. Taxact 2013   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. Taxact 2013 Excess not withdrawn by April 15. Taxact 2013   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. Taxact 2013 In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Taxact 2013 Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. Taxact 2013 Reporting corrective distributions on Form 1099-R. Taxact 2013   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. Taxact 2013 For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. Taxact 2013 Tax on excess contributions of highly compensated employees. Taxact 2013   The law provides tests to detect discrimination in a plan. Taxact 2013 If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. Taxact 2013 Report the tax on Form 5330. Taxact 2013 The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. Taxact 2013 Also, the ACP test does not apply to these plans if certain additional requirements are met. Taxact 2013   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. Taxact 2013 Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. Taxact 2013   See Regulations sections 1. Taxact 2013 401(k)-2 and 1. Taxact 2013 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Taxact 2013    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. Taxact 2013 Safe harbor 401(k) plan. Taxact 2013 If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. Taxact 2013 For your plan to be a safe harbor plan, you must meet the following conditions. Taxact 2013 Matching or nonelective contributions. Taxact 2013 You must make matching or nonelective contributions according to one of the following formulas. Taxact 2013 Matching contributions. Taxact 2013 You must make matching contributions according to the following rules. Taxact 2013 You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. Taxact 2013 You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. Taxact 2013 The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Taxact 2013 Nonelective contributions. Taxact 2013 You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. Taxact 2013 These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. Taxact 2013 Notice requirement. Taxact 2013 You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. Taxact 2013 The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. Taxact 2013 Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. Taxact 2013 Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. Taxact 2013 However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. Taxact 2013 Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. Taxact 2013 Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. Taxact 2013 Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. Taxact 2013 An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. Taxact 2013 The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. Taxact 2013 Rollover. Taxact 2013   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. Taxact 2013 For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. Taxact 2013 R. Taxact 2013 B. Taxact 2013 872, available at www. Taxact 2013 irs. Taxact 2013 gov/irb/2010-51_IRB/ar11. Taxact 2013 html, and Notice 2013-74. Taxact 2013 A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. Taxact 2013 Rollover amounts do not apply toward the annual deferral limit. Taxact 2013 Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. Taxact 2013 See the Form W-2 and 1099-R instructions for detailed information. Taxact 2013 Distributions Amounts paid to plan participants from a qualified plan are called distributions. Taxact 2013 Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. Taxact 2013 Also, certain loans may be treated as distributions. Taxact 2013 See Loans Treated as Distributions in Publication 575. Taxact 2013 Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). Taxact 2013 These distribution rules apply individually to each qualified plan. Taxact 2013 You cannot satisfy the requirement for one plan by taking a distribution from another. Taxact 2013 The plan must provide that these rules override any inconsistent distribution options previously offered. Taxact 2013 Minimum distribution. Taxact 2013   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. Taxact 2013 This minimum is figured by dividing the account balance by the applicable life expectancy. Taxact 2013 The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. Taxact 2013 For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. Taxact 2013 Required beginning date. Taxact 2013   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. Taxact 2013   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. Taxact 2013 Calendar year in which he or she reaches age 70½. Taxact 2013 Calendar year in which he or she retires from employment with the employer maintaining the plan. Taxact 2013 However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. Taxact 2013   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. Taxact 2013 For more information, see Tax on Excess Accumulation in Publication 575. Taxact 2013 Distributions after the starting year. Taxact 2013   The distribution required to be made by April 1 is treated as a distribution for the starting year. Taxact 2013 (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. Taxact 2013 ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. Taxact 2013 If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). Taxact 2013 Distributions after participant's death. Taxact 2013   See Publication 575 for the special rules covering distributions made after the death of a participant. Taxact 2013 Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. Taxact 2013 The employee retires, dies, becomes disabled, or otherwise severs employment. Taxact 2013 The plan ends and no other defined contribution plan is established or continued. Taxact 2013 In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. Taxact 2013 For the rules on hardship distributions, including the limits on them, see Regulations section 1. Taxact 2013 401(k)-1(d). Taxact 2013 The employee becomes eligible for a qualified reservist distribution (defined next). Taxact 2013 Certain distributions listed above may be subject to the tax on early distributions discussed later. Taxact 2013 Qualified reservist distributions. Taxact 2013   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. Taxact 2013 All or part of a qualified reservist distribution can be recontributed to an IRA. Taxact 2013 The additional 10% tax on early distributions does not apply to a qualified reservist distribution. Taxact 2013 Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. Taxact 2013 Since most recipients have no cost basis, a distribution is generally fully taxable. Taxact 2013 An exception is a distribution that is properly rolled over as discussed under Rollover, next. Taxact 2013 The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. Taxact 2013 See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. Taxact 2013 Note. Taxact 2013 A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. Taxact 2013 Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. Taxact 2013 See Qualified distributions under Qualified Roth Contribution Program, earlier. Taxact 2013 Rollover. Taxact 2013   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. Taxact 2013 However, it may be subject to withholding as discussed under Withholding requirement, later. Taxact 2013 A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. Taxact 2013 Eligible rollover distribution. Taxact 2013   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. Taxact 2013 A required minimum distribution. Taxact 2013 See Required Distributions , earlier. Taxact 2013 Any of a series of substantially equal payments made at least once a year over any of the following periods. Taxact 2013 The employee's life or life expectancy. Taxact 2013 The joint lives or life expectancies of the employee and beneficiary. Taxact 2013 A period of 10 years or longer. Taxact 2013 A hardship distribution. Taxact 2013 The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. Taxact 2013 See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. Taxact 2013 Loans treated as distributions. Taxact 2013 Dividends on employer securities. Taxact 2013 The cost of any life insurance coverage provided under a qualified retirement plan. Taxact 2013 Similar items designated by the IRS in published guidance. Taxact 2013 See, for example, the Instructions for Forms 1099-R and 5498. Taxact 2013 Rollover of nontaxable amounts. Taxact 2013   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. Taxact 2013 If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. Taxact 2013 If the rollover is to an IRA, the transfer can be made by any rollover method. Taxact 2013 Note. Taxact 2013 A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. Taxact 2013 If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). Taxact 2013 More information. Taxact 2013   For more information about rollovers, see Rollovers in Pubs. Taxact 2013 575 and 590. Taxact 2013 Withholding requirement. Taxact 2013   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. Taxact 2013 Exceptions. Taxact 2013   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. Taxact 2013   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. Taxact 2013 Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). Taxact 2013 However, the participant can choose not to have tax withheld from these distributions. Taxact 2013 If the participant does not make this choice, the following withholding rules apply. Taxact 2013 For periodic distributions, withholding is based on their treatment as wages. Taxact 2013 For nonperiodic distributions, 10% of the taxable part is withheld. Taxact 2013 Estimated tax payments. Taxact 2013   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. Taxact 2013 For more information, see Withholding Tax and Estimated Tax in Publication 575. Taxact 2013 Section 402(f) Notice. Taxact 2013   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. Taxact 2013 That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. Taxact 2013 That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. Taxact 2013 That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. Taxact 2013 Certain other rules that may be applicable. Taxact 2013   Notice 2009-68, 2009-39 I. Taxact 2013 R. Taxact 2013 B. Taxact 2013 423, available at www. Taxact 2013 irs. Taxact 2013 gov/irb/2009-39_IRB/ar14. Taxact 2013 html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. Taxact 2013 If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. Taxact 2013 Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. Taxact 2013 Timing of notice. Taxact 2013   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. Taxact 2013 Method of notice. Taxact 2013   The written notice must be provided individually to each distributee of an eligible rollover distribution. Taxact 2013 Posting of the notice is not sufficient. Taxact 2013 However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. Taxact 2013 See Regulations section 1. Taxact 2013 401(a)-21. Taxact 2013 Tax on failure to give notice. Taxact 2013   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. Taxact 2013 The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. Taxact 2013 Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. Taxact 2013 This tax applies to the amount received that the employee must include in income. Taxact 2013 Exceptions. Taxact 2013   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. Taxact 2013 Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. Taxact 2013 Made due to the employee having a qualifying disability. Taxact 2013 Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. Taxact 2013 (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. Taxact 2013 ) Made to an employee after separation from service if the separation occurred during o
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IRS Continues Smooth Start to Filing Season

 

IR-2014-20, Feb. 27, 2014

WASHINGTON — The IRS announced today that, three weeks into the filing season, it has received about one-third of the individual income tax returns that it expects to receive during 2014. The IRS has processed almost 98 percent of the 49.6 million returns received so far. Each week this filing season, the IRS has processed a greater percentage of the returns received than during comparable weeks last year.

More taxpayers are filing their returns electronically this year. Overall, 46.6 million returns have been e-filed this year, up one percent from the same time last year. As in prior years, the greatest increase is among individuals filing from their home computers. Almost 22 million returns have been e-filed from home computers this year, an increase of almost 7 percent compared to the same time last year.

The IRS has issued more than 40 million tax refunds this year, an increase of more than six percent compared to the same time last year. Almost 90 percent of these refunds were directly deposited into taxpayers’ accounts.

 

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2014 FILING SEASON STATISTICS

Cumulative statistics comparing 2/22/13 and 2/21/14

Individual Income Tax Returns:

2013

2014

% Change

Total Receipts

49,448,000

49,558,000

0.2

Total Processed

42,837,000

48,335,000

12.8

 

 

 

 

E-filing Receipts:

 

 

 

TOTAL           

46,149,000

46,641,000

1.1

Tax Professionals

25,618,000

24,687,000

-3.6

Self-prepared

20,531,000

21,954,000

6.9

 

 

 

 

Web Usage:

 

 

 

Visits to IRS.gov

155,167,572

145,881,766

-6.0

 

 

 

 

Total Refunds:

 

 

 

Number

38,042,000

40,389,000

6.2

Amount

$113.738

Billion

$125.831

Billion

10.6

Average refund

$2,990

$3,116

4.2

 

 

 

 

Direct Deposit Refunds:

 

 

 

Number

34,618,000

35,694,000

3.1

Amount

$107.228

Billion

$112.628

Billion

5.0

Average refund

$3,097

$3,155

1.9

 

Page Last Reviewed or Updated: 27-Feb-2014

The Taxact 2013

Taxact 2013 Publication 575 - Main Content Table of Contents General InformationPension. Taxact 2013 Annuity. Taxact 2013 Qualified employee plan. Taxact 2013 Qualified employee annuity. Taxact 2013 Designated Roth account. Taxact 2013 Tax-sheltered annuity plan. Taxact 2013 Fixed-period annuities. Taxact 2013 Annuities for a single life. Taxact 2013 Joint and survivor annuities. Taxact 2013 Variable annuities. Taxact 2013 Disability pensions. Taxact 2013 Variable Annuities Section 457 Deferred Compensation Plans Disability Pensions Insurance Premiums for Retired Public Safety Officers Railroad Retirement Benefits Withholding Tax and Estimated Tax Cost (Investment in the Contract)Foreign employment contributions while a nonresident alien. Taxact 2013 Taxation of Periodic PaymentsPeriod of participation. Taxact 2013 Fully Taxable Payments Partly Taxable Payments Taxation of Nonperiodic PaymentsFiguring the Taxable Amount Loans Treated as Distributions Transfers of Annuity Contracts Lump-Sum Distributions RolloversExceptions. Taxact 2013 No tax withheld. Taxact 2013 Partial rollovers. Taxact 2013 Frozen deposits. Taxact 2013 Reasonable period of time. Taxact 2013 20% Mandatory withholding. Taxact 2013 How to report. Taxact 2013 How to report. Taxact 2013 Special rule for Roth IRAs and designated Roth accounts. Taxact 2013 Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and BeneficiariesGuaranteed payments. Taxact 2013 How To Get Tax HelpLow Income Taxpayer Clinics General Information Definitions. Taxact 2013   Some of the terms used in this publication are defined in the following paragraphs. Taxact 2013 Pension. Taxact 2013   A pension is generally a series of definitely determinable payments made to you after you retire from work. Taxact 2013 Pension payments are made regularly and are based on such factors as years of service and prior compensation. Taxact 2013 Annuity. Taxact 2013   An annuity is a series of payments under a contract made at regular intervals over a period of more than one full year. Taxact 2013 They can be either fixed (under which you receive a definite amount) or variable (not fixed). Taxact 2013 You can buy the contract alone or with the help of your employer. Taxact 2013 Qualified employee plan. Taxact 2013   A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries and that meets Internal Revenue Code requirements. Taxact 2013 It qualifies for special tax benefits, such as tax deferral for employer contributions and capital gain treatment or the 10-year tax option for lump-sum distributions (if participants qualify). Taxact 2013 To determine whether your plan is a qualified plan, check with your employer or the plan administrator. Taxact 2013 Qualified employee annuity. Taxact 2013   A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Taxact 2013 Designated Roth account. Taxact 2013   A designated Roth account is a separate account created under a qualified Roth contribution program to which participants may elect to have part or all of their elective deferrals to a 401(k), 403(b), or 457(b) plan designated as Roth contributions. Taxact 2013 Elective deferrals that are designated as Roth contributions are included in your income. Taxact 2013 However, qualified distributions (explained later) are not included in your income. Taxact 2013 You should check with your plan administrator to determine if your plan will accept designated Roth contributions. Taxact 2013 Tax-sheltered annuity plan. Taxact 2013   A tax-sheltered annuity plan (often referred to as a 403(b) plan or a tax-deferred annuity plan) is a retirement plan for employees of public schools and certain tax-exempt organizations. Taxact 2013 Generally, a tax-sheltered annuity plan provides retirement benefits by purchasing annuity contracts for its participants. Taxact 2013 Types of pensions and annuities. Taxact 2013   Pensions and annuities include the following types. Taxact 2013 Fixed-period annuities. Taxact 2013   You receive definite amounts at regular intervals for a specified length of time. Taxact 2013 Annuities for a single life. Taxact 2013   You receive definite amounts at regular intervals for life. Taxact 2013 The payments end at death. Taxact 2013 Joint and survivor annuities. Taxact 2013   The first annuitant receives a definite amount at regular intervals for life. Taxact 2013 After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Taxact 2013 The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Taxact 2013 Variable annuities. Taxact 2013   You receive payments that may vary in amount for a specified length of time or for life. Taxact 2013 The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds, cost-of-living indexes, or earnings from a mutual fund. Taxact 2013 Disability pensions. Taxact 2013   You receive disability payments because you retired on disability and have not reached minimum retirement age. Taxact 2013 More than one program. Taxact 2013   You may receive employee plan benefits from more than one program under a single trust or plan of your employer. Taxact 2013 If you participate in more than one program, you may have to treat each as a separate pension or annuity contract, depending upon the facts in each case. Taxact 2013 Also, you may be considered to have received more than one pension or annuity. Taxact 2013 Your former employer or the plan administrator should be able to tell you if you have more than one contract. Taxact 2013 Example. Taxact 2013 Your employer set up a noncontributory profit-sharing plan for its employees. Taxact 2013 The plan provides that the amount held in the account of each participant will be paid when that participant retires. Taxact 2013 Your employer also set up a contributory defined benefit pension plan for its employees providing for the payment of a lifetime pension to each participant after retirement. Taxact 2013 The amount of any distribution from the profit-sharing plan depends on the contributions (including allocated forfeitures) made for the participant and the earnings from those contributions. Taxact 2013 Under the pension plan, however, a formula determines the amount of the pension benefits. Taxact 2013 The amount of contributions is the amount necessary to provide that pension. Taxact 2013 Each plan is a separate program and a separate contract. Taxact 2013 If you get benefits from these plans, you must account for each separately, even though the benefits from both may be included in the same check. Taxact 2013 Distributions from a designated Roth account are treated separately from other distributions from the plan. Taxact 2013 Qualified domestic relations order (QDRO). Taxact 2013   A QDRO is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant in a retirement plan. Taxact 2013 The QDRO must contain certain specific information, such as the name and last known mailing address of the participant and each alternate payee, and the amount or percentage of the participant's benefits to be paid to each alternate payee. Taxact 2013 A QDRO may not award an amount or form of benefit that is not available under the plan. Taxact 2013   A spouse or former spouse who receives part of the benefits from a retirement plan under a QDRO reports the payments received as if he or she were a plan participant. Taxact 2013 The spouse or former spouse is allocated a share of the participant's cost (investment in the contract) equal to the cost times a fraction. Taxact 2013 The numerator of the fraction is the present value of the benefits payable to the spouse or former spouse. Taxact 2013 The denominator is the present value of all benefits payable to the participant. Taxact 2013   A distribution that is paid to a child or other dependent under a QDRO is taxed to the plan participant. Taxact 2013 Variable Annuities The tax rules in this publication apply both to annuities that provide fixed payments and to annuities that provide payments that vary in amount based on investment results or other factors. Taxact 2013 For example, they apply to commercial variable annuity contracts, whether bought by an employee retirement plan for its participants or bought directly from the issuer by an individual investor. Taxact 2013 Under these contracts, the owner can generally allocate the purchase payments among several types of investment portfolios or mutual funds and the contract value is determined by the performance of those investments. Taxact 2013 The earnings are not taxed until distributed either in a withdrawal or in annuity payments. Taxact 2013 The taxable part of a distribution is treated as ordinary income. Taxact 2013 Net investment income tax. Taxact 2013   Beginning in 2013, annuities under a nonqualified plan are included in calculating your net investment income for the net investment income tax (NIIT). Taxact 2013 For information see the Instructions for Form 8960, Net Investment Income Tax — Individuals, Estates and Trusts. Taxact 2013 For information on the tax treatment of a transfer or exchange of a variable annuity contract, see Transfers of Annuity Contracts under Taxation of Nonperiodic Payments, later. Taxact 2013 Withdrawals. Taxact 2013   If you withdraw funds before your annuity starting date and your annuity is under a qualified retirement plan, a ratable part of the amount withdrawn is tax free. Taxact 2013 The tax-free part is based on the ratio of your cost (investment in the contract) to your account balance under the plan. Taxact 2013   If your annuity is under a nonqualified plan (including a contract you bought directly from the issuer), the amount withdrawn is allocated first to earnings (the taxable part) and then to your cost (the tax-free part). Taxact 2013 However, if you bought your annuity contract before August 14, 1982, a different allocation applies to the investment before that date and the earnings on that investment. Taxact 2013 To the extent the amount withdrawn does not exceed that investment and earnings, it is allocated first to your cost (the tax-free part) and then to earnings (the taxable part). Taxact 2013   If you withdraw funds (other than as an annuity) on or after your annuity starting date, the entire amount withdrawn is generally taxable. Taxact 2013   The amount you receive in a full surrender of your annuity contract at any time is tax free to the extent of any cost that you have not previously recovered tax free. Taxact 2013 The rest is taxable. Taxact 2013   For more information on the tax treatment of withdrawals, see Taxation of Nonperiodic Payments , later. Taxact 2013 If you withdraw funds from your annuity before you reach age 59½, also see Tax on Early Distributions under Special Additional Taxes, later. Taxact 2013 Annuity payments. Taxact 2013   If you receive annuity payments under a variable annuity plan or contract, you recover your cost tax free under either the Simplified Method or the General Rule, as explained under Taxation of Periodic Payments , later. Taxact 2013 For a variable annuity paid under a qualified plan, you generally must use the Simplified Method. Taxact 2013 For a variable annuity paid under a nonqualified plan (including a contract you bought directly from the issuer), you must use a special computation under the General Rule. Taxact 2013 For more information, see Variable annuities in Publication 939 under Computation Under the General Rule. Taxact 2013 Death benefits. Taxact 2013    If you receive a single-sum distribution from a variable annuity contract because of the death of the owner or annuitant, the distribution is generally taxable only to the extent it is more than the unrecovered cost of the contract. Taxact 2013 If you choose to receive an annuity, the payments are subject to tax as described above. Taxact 2013 If the contract provides a joint and survivor annuity and the primary annuitant had received annuity payments before death, you figure the tax-free part of annuity payments you receive as the survivor in the same way the primary annuitant did. Taxact 2013 See Survivors and Beneficiaries , later. Taxact 2013 Section 457 Deferred Compensation Plans If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. Taxact 2013 If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. Taxact 2013 You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. Taxact 2013 You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. Taxact 2013 Your 457(b) plan may have a designated Roth account option. Taxact 2013 If so, you may be able to roll over amounts to the designated Roth account or make contributions. Taxact 2013 Elective deferrals to a designated Roth account are included in your income. Taxact 2013 Qualified distributions (explained later) are not included in your income. Taxact 2013 See the Designated Roth accounts discussion under Taxation of Periodic Payments, later. Taxact 2013 This publication covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. Taxact 2013 For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525. Taxact 2013 Is your plan eligible?   To find out if your plan is an eligible plan, check with your employer. Taxact 2013 Plans that are not eligible section 457 plans include the following: Bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plans. Taxact 2013 Nonelective deferred compensation plans for nonemployees (independent contractors). Taxact 2013 Deferred compensation plans maintained by churches. Taxact 2013 Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. Taxact 2013 An exception applies if the total amount paid to a volunteer exceeds $3,000 for any year of service. Taxact 2013 Disability Pensions If you retired on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer. Taxact 2013 You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Taxact 2013 Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Taxact 2013 You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Taxact 2013 For information on this credit, see Publication 524. Taxact 2013 Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Taxact 2013 Report the payments on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Taxact 2013 Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. Taxact 2013 For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Taxact 2013 Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. Taxact 2013 The premiums can be for coverage for you, your spouse, or dependents. Taxact 2013 The distribution must be made directly from the plan to the insurance provider. Taxact 2013 You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Taxact 2013 You can only make this election for amounts that would otherwise be included in your income. Taxact 2013 The amount excluded from your income cannot be used to claim a medical expense deduction. Taxact 2013 An eligible retirement plan is a governmental plan that is: a qualified trust, a section 403(a) plan, a section 403(b) annuity, or a section 457(b) plan. Taxact 2013 If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Taxact 2013 The amount shown in box 2a of Form 1099-R does not reflect this exclusion. Taxact 2013 Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Taxact 2013 Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Taxact 2013 Enter “PSO” next to the appropriate line on which you report the taxable amount. Taxact 2013 If you are retired on disability and reporting your disability pension on line 7 of Form 1040 or Form 1040A, or line 8 of Form 1040NR, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line. Taxact 2013 Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Taxact 2013 These categories are treated differently for income tax purposes. Taxact 2013 The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Taxact 2013 This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and you treat it for tax purposes like social security benefits. Taxact 2013 If you received, repaid, or had tax withheld from the SSEB portion of tier 1 benefits during 2013, you will receive Form RRB-1099, Payments by the Railroad Retirement Board (or Form RRB-1042S, Statement for Nonresident Alien Recipients of Payments by the Railroad Retirement Board, if you are a nonresident alien) from the U. Taxact 2013 S. Taxact 2013 Railroad Retirement Board (RRB). Taxact 2013 For more information about the tax treatment of the SSEB portion of tier 1 benefits and Forms RRB-1099 and RRB-1042S, see Publication 915. Taxact 2013 The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent benefit (NSSEB). Taxact 2013 It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Taxact 2013 Treat this category of benefits, shown on Form RRB-1099-R, as an amount received from a qualified employee plan. Taxact 2013 This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. Taxact 2013 (The NSSEB and tier 2 benefits, less certain repayments, are combined into one amount called the Contributory Amount Paid on Form RRB-1099-R. Taxact 2013 ) Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Taxact 2013 See Taxation of Periodic Payments , later, for information on how to report your benefits and how to recover the employee contributions tax free. Taxact 2013 Form RRB-1099-R is used for U. Taxact 2013 S. Taxact 2013 citizens, resident aliens, and nonresident aliens. Taxact 2013 Nonresident aliens. Taxact 2013   A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Taxact 2013 Nonresident aliens are subject to mandatory U. Taxact 2013 S. Taxact 2013 tax withholding unless exempt under a tax treaty between the United States and their country of legal residency. Taxact 2013 A tax treaty exemption may reduce or eliminate tax withholding from railroad retirement benefits. Taxact 2013 See Tax withholding next for more information. Taxact 2013   If you are a nonresident alien and your tax withholding rate changed or your country of legal residence changed during the year, you may receive more than one Form RRB-1042S or Form RRB-1099-R. Taxact 2013 To determine your total benefits paid or repaid and total tax withheld for the year, you should add the amounts shown on all forms you received for that year. Taxact 2013 For information on filing requirements for aliens, see Publication 519, U. Taxact 2013 S. Taxact 2013 Tax Guide for Aliens. Taxact 2013 For information on tax treaties between the United States and other countries that may reduce or eliminate U. Taxact 2013 S. Taxact 2013 tax on your benefits, see Publication 901, U. Taxact 2013 S. Taxact 2013 Tax Treaties. Taxact 2013 Tax withholding. Taxact 2013   To request or change your income tax withholding from SSEB payments, U. Taxact 2013 S. Taxact 2013 citizens should contact the IRS for Form W-4V, Voluntary Withholding Request, and file it with the RRB. Taxact 2013 To elect, revoke, or change your income tax withholding from NSSEB, tier 2, VDB, and supplemental annuity payments received, use Form RRB W-4P, Withholding Certificate for Railroad Retirement Payments. Taxact 2013 If you are a nonresident alien or a U. Taxact 2013 S. Taxact 2013 citizen living abroad, you should provide Form RRB-1001, Nonresident Questionnaire, to the RRB to furnish citizenship and residency information and to claim any treaty exemption from U. Taxact 2013 S. Taxact 2013 tax withholding. Taxact 2013 Nonresident U. Taxact 2013 S. Taxact 2013 citizens cannot elect to be exempt from withholding on payments delivered outside of the U. Taxact 2013 S. Taxact 2013 Help from the RRB. Taxact 2013   To request an RRB form or to get help with questions about an RRB benefit, you should contact your nearest RRB field office if you reside in the United States (call 1-877-772-5772 for the nearest field office) or U. Taxact 2013 S. Taxact 2013 consulate/Embassy if you reside outside the United States. Taxact 2013 You can visit the RRB on the Internet at www. Taxact 2013 rrb. Taxact 2013 gov. Taxact 2013 Form RRB-1099-R. Taxact 2013   The following discussion explains the items shown on Form RRB-1099-R. Taxact 2013 The amounts shown on this form are before any deduction for: Federal income tax withholding, Medicare premiums, Legal process garnishment payments, Recovery of a prior year overpayment of an NSSEB, tier 2 benefit, VDB, or supplemental annuity benefit, or Recovery of Railroad Unemployment Insurance Act benefits received while awaiting payment of your railroad retirement annuity. Taxact 2013   The amounts shown on this form are after any offset for: Social Security benefits, Age reduction, Public Service pensions or public disability benefits, Dual railroad retirement entitlement under another RRB claim number, Work deductions, Legal process partition deductions, Actuarial adjustment, Annuity waiver, or Recovery of a current-year overpayment of NSSEB, tier 2, VDB, or supplemental annuity benefits. Taxact 2013   The amounts shown on Form RRB-1099-R do not reflect any special rules, such as capital gain treatment or the special 10-year tax option for lump-sum payments, or tax-free rollovers. Taxact 2013 To determine if any of these rules apply to your benefits, see the discussions about them later. Taxact 2013   Generally, amounts shown on your Form RRB-1099-R are considered a normal distribution. Taxact 2013 Use distribution code “7” if you are asked for a distribution code. Taxact 2013 Distribution codes are not shown on Form RRB-1099-R. Taxact 2013   There are three copies of this form. Taxact 2013 Copy B is to be included with your income tax return if federal income tax is withheld. Taxact 2013 Copy C is for your own records. Taxact 2013 Copy 2 is filed with your state, city, or local income tax return, when required. Taxact 2013 See the illustrated Copy B (Form RRB-1099-R) above. Taxact 2013       Each beneficiary will receive his or her own Form RRB-1099-R. Taxact 2013 If you receive benefits on more than one railroad retirement record, you may get more than one Form RRB-1099-R. Taxact 2013 So that you get your form timely, make sure the RRB always has your current mailing address. Taxact 2013 Please click here for the text description of the image. Taxact 2013 Form RRB-1099-R Box 1—Claim Number and Payee Code. Taxact 2013   Your claim number is a six- or nine-digit number preceded by an alphabetical prefix. Taxact 2013 This is the number under which the RRB paid your benefits. Taxact 2013 Your payee code follows your claim number and is the last number in this box. Taxact 2013 It is used by the RRB to identify you under your claim number. Taxact 2013 In all your correspondence with the RRB, be sure to use the claim number and payee code shown in this box. Taxact 2013 Box 2—Recipient's Identification Number. Taxact 2013   This is the recipient's U. Taxact 2013 S. Taxact 2013 taxpayer identification number. Taxact 2013 It is the social security number (SSN), individual taxpayer identification number (ITIN), or employer identification number (EIN), if known, for the person or estate listed as the recipient. Taxact 2013 If you are a resident or nonresident alien who must furnish a taxpayer identification number to the IRS and are not eligible to obtain an SSN, use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN. Taxact 2013 The Instructions for Form W-7 explain how and when to apply. Taxact 2013 Box 3—Employee Contributions. Taxact 2013   This is the amount of taxes withheld from the railroad employee's earnings that exceeds the amount of taxes that would have been withheld had the earnings been covered under the social security system. Taxact 2013 This amount is the employee's cost that you use to figure the tax-free part of the NSSEB and tier 2 benefit you received (the amount shown in box 4). Taxact 2013 (For information on how to figure the tax-free part, see Partly Taxable Payments under Taxation of Periodic Payments, later. Taxact 2013 ) The amount shown is the total employee contribution amount, not reduced by any amounts that the RRB calculated as previously recovered. Taxact 2013 It is the latest amount reported for 2013 and may have increased or decreased from a previous Form RRB-1099-R. Taxact 2013 If this amount has changed, the change is retroactive. Taxact 2013 You may need to refigure the tax-free part of your NSSEB/tier 2 benefit for 2013 and prior tax years. Taxact 2013 If this box is blank, it means that the amount of your NSSEB and tier 2 payments shown in box 4 is fully taxable. Taxact 2013    If you had a previous annuity entitlement that ended and you are figuring the tax-free part of your NSSEB/tier 2 benefit for your current annuity entitlement, you should contact the RRB for confirmation of your correct employee contribution amount. Taxact 2013 Box 4—Contributory Amount Paid. Taxact 2013   This is the gross amount of the NSSEB and tier 2 benefit you received in 2013, less any 2013 benefits you repaid in 2013. Taxact 2013 (Any benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Taxact 2013 ) This amount is the total contributory pension paid in 2013. Taxact 2013 It may be partly taxable and partly tax free or fully taxable. Taxact 2013 If you determine you are eligible to compute a tax-free part as explained later in Partly Taxable Payments under Taxation of Periodic Payments, use the latest reported employee contribution amount shown in box 3 as the cost. Taxact 2013 Box 5—Vested Dual Benefit. Taxact 2013   This is the gross amount of vested dual benefit (VDB) payments paid in 2013, less any 2013 VDB payments you repaid in 2013. Taxact 2013 It is fully taxable. Taxact 2013 VDB payments you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Taxact 2013 Note. Taxact 2013 The amounts shown in boxes 4 and 5 may represent payments for 2013 and/or other years after 1983. Taxact 2013 Box 6—Supplemental Annuity. Taxact 2013   This is the gross amount of supplemental annuity benefits paid in 2013, less any 2013 supplemental annuity benefits you repaid in 2013. Taxact 2013 It is fully taxable. Taxact 2013 Supplemental annuity benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Taxact 2013 Box 7—Total Gross Paid. Taxact 2013   This is the sum of boxes 4, 5, and 6. Taxact 2013 The amount represents the total pension paid in 2013. Taxact 2013 Include this amount on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Taxact 2013 Box 8—Repayments. Taxact 2013   This amount represents any NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit you repaid to the RRB in 2013 for years before 2013 or for unknown years. Taxact 2013 The amount shown in this box has not been deducted from the amounts shown in boxes 4, 5, and 6. Taxact 2013 It only includes repayments of benefits that were taxable to you. Taxact 2013 This means it only includes repayments in 2013 of NSSEB benefits paid after 1985, tier 2 and VDB benefits paid after 1983, and supplemental annuity benefits paid in any year. Taxact 2013 If you included the benefits in your income in the year you received them, you may be able to deduct the repaid amount. Taxact 2013 For more information about repayments, see Repayment of benefits received in an earlier year , later. Taxact 2013    You may have repaid an overpayment of benefits by returning a payment, by making a payment, or by having an amount withheld from your railroad retirement annuity payment. Taxact 2013 Box 9—Federal Income Tax Withheld. Taxact 2013   This is the total federal income tax withheld from your NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit. Taxact 2013 Include this on your income tax return as tax withheld. Taxact 2013 If you are a nonresident alien and your tax withholding rate and/or country of legal residence changed during 2013, you will receive more than one Form RRB-1099-R for 2013. Taxact 2013 Determine the total amount of U. Taxact 2013 S. Taxact 2013 federal income tax withheld from your 2013 RRB NSSEB, tier 2, VDB, and supplemental annuity payments by adding the amounts in box 9 of all original 2013 Forms RRB-1099-R, or the latest corrected or duplicate Forms RRB-1099-R you receive. Taxact 2013 Box 10—Rate of Tax. Taxact 2013   If you are taxed as a U. Taxact 2013 S. Taxact 2013 citizen or resident alien, this box does not apply to you. Taxact 2013 If you are a nonresident alien, an entry in this box indicates the rate at which tax was withheld on the NSSEB, tier 2, VDB, and supplemental annuity payments that were paid to you in 2013. Taxact 2013 If you are a nonresident alien whose tax was withheld at more than one rate during 2013, you will receive a separate Form RRB-1099-R for each rate change during 2013. Taxact 2013 Box 11—Country. Taxact 2013   If you are taxed as a U. Taxact 2013 S. Taxact 2013 citizen or resident alien, this box does not apply to you. Taxact 2013 If you are a nonresident alien, an entry in this box indicates the country of which you were a resident for tax purposes at the time you received railroad retirement payments in 2013. Taxact 2013 If you are a nonresident alien who was a resident of more than one country during 2013, you will receive a separate Form RRB-1099-R for each country of residence during 2013. Taxact 2013 Box 12—Medicare Premium Total. Taxact 2013   This is for information purposes only. Taxact 2013 The amount shown in this box represents the total amount of Part B Medicare premiums deducted from your railroad retirement annuity payments in 2013. Taxact 2013 Medicare premium refunds are not included in the Medicare total. Taxact 2013 The Medicare total is normally shown on Form RRB-1099 (if you are a citizen or resident alien of the United States) or Form RRB-1042S (if you are a nonresident alien). Taxact 2013 However, if Form RRB-1099 or Form RRB-1042S is not required for 2013, then this total will be shown on Form RRB-1099-R. Taxact 2013 If your Medicare premiums were deducted from your social security benefits, paid by a third party, refunded to you, and/or you paid the premiums by direct billing, your Medicare total will not be shown in this box. Taxact 2013 Repayment of benefits received in an earlier year. Taxact 2013   If you had to repay any railroad retirement benefits that you had included in your income in an earlier year because at that time you thought you had an unrestricted right to it, you can deduct the amount you repaid in the year in which you repaid it. Taxact 2013   If you repaid $3,000 or less in 2013, deduct it on Schedule A (Form 1040), line 23. Taxact 2013 The 2%-of-adjusted-gross-income limit applies to this deduction. Taxact 2013 You cannot take this deduction if you file Form 1040A. Taxact 2013    If you repaid more than $3,000 in 2013, you can either take a deduction for the amount repaid on Schedule A (Form 1040), line 28 or you can take a credit against your tax. Taxact 2013 For more information, see Repayments in Publication 525. Taxact 2013 Withholding Tax and Estimated Tax Your retirement plan distributions are subject to federal income tax withholding. Taxact 2013 However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. Taxact 2013 (These are distributions, described later under Rollovers, that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Taxact 2013 ) If you choose not to have tax withheld or if you do not have enough tax withheld, you may have to make estimated tax payments. Taxact 2013 See Estimated tax , later. Taxact 2013 The withholding rules apply to the taxable part of payments you receive from: An employer pension, annuity, profit-sharing, or stock bonus plan, Any other deferred compensation plan, A traditional individual retirement arrangement (IRA), or A commercial annuity. Taxact 2013 For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company. Taxact 2013 There will be no withholding on any part of a distribution where it is reasonable to believe that it will not be includible in gross income. Taxact 2013 Choosing no withholding. Taxact 2013   You can choose not to have income tax withheld from retirement plan payments unless they are eligible rollover distributions. Taxact 2013 You can make this choice on Form W-4P for periodic and nonperiodic payments. Taxact 2013 This choice generally remains in effect until you revoke it. Taxact 2013   The payer will ignore your choice not to have tax withheld if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number. Taxact 2013   To choose not to have tax withheld, a U. Taxact 2013 S. Taxact 2013 citizen or resident alien must give the payer a home address in the United States or its possessions. Taxact 2013 Without that address, the payer must withhold tax. Taxact 2013 For example, the payer has to withhold tax if the recipient has provided a U. Taxact 2013 S. Taxact 2013 address for a nominee, trustee, or agent to whom the benefits are delivered, but has not provided his or her own U. Taxact 2013 S. Taxact 2013 home address. Taxact 2013   If you do not give the payer a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to the payer that you are not a U. Taxact 2013 S. Taxact 2013 citizen, a U. Taxact 2013 S. Taxact 2013 resident alien, or someone who left the country to avoid tax. Taxact 2013 But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Taxact 2013 This 30% rate will not apply if you are exempt or subject to a reduced rate by treaty. Taxact 2013 For details, get Publication 519. Taxact 2013 Periodic payments. Taxact 2013   Unless you choose no withholding, your annuity or similar periodic payments (other than eligible rollover distributions) will be treated like wages for withholding purposes. Taxact 2013 Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Taxact 2013 You should give the payer a completed withholding certificate (Form W-4P or a similar form provided by the payer). Taxact 2013 If you do not, tax will be withheld as if you were married and claiming three withholding allowances. Taxact 2013   Tax will be withheld as if you were single and were claiming no withholding allowances if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer (before any payment is made) that you gave an incorrect social security number. Taxact 2013   You must file a new withholding certificate to change the amount of withholding. Taxact 2013 Nonperiodic distributions. Taxact 2013    Unless you choose no withholding, the withholding rate for a nonperiodic distribution (a payment other than a periodic payment) that is not an eligible rollover distribution is 10% of the distribution. Taxact 2013 You can also ask the payer to withhold an additional amount using Form W-4P. Taxact 2013 The part of any loan treated as a distribution (except an offset amount to repay the loan), explained later, is subject to withholding under this rule. Taxact 2013 Eligible rollover distribution. Taxact 2013    If you receive an eligible rollover distribution, 20% of it generally will be withheld for income tax. Taxact 2013 You cannot choose not to have tax withheld from an eligible rollover distribution. Taxact 2013 However, tax will not be withheld if you have the plan administrator pay the eligible rollover distribution directly to another qualified plan or an IRA in a direct rollover. Taxact 2013 For more information about eligible rollover distributions, see Rollovers , later. Taxact 2013 Estimated tax. Taxact 2013   Your estimated tax is the total of your expected income tax, self-employment tax, and certain other taxes for the year, minus your expected credits and withheld tax. Taxact 2013 Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax (after subtracting your withholding and credits) and you expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2014 return, or 100% of the tax shown on your 2013 return. Taxact 2013 If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above. Taxact 2013 For more information, get Publication 505, Tax Withholding and Estimated Tax. Taxact 2013 In figuring your withholding or estimated tax, remember that a part of your monthly social security or equivalent tier 1 railroad retirement benefits may be taxable. Taxact 2013 See Publication 915. Taxact 2013 You can choose to have income tax withheld from those benefits. Taxact 2013 Use Form W-4V to make this choice. Taxact 2013 Cost (Investment in the Contract) Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the contract). Taxact 2013 If any part of a distribution is treated as a recovery of your cost under the rules explained in this publication, that part is tax free. Taxact 2013 Therefore, the first step in figuring how much of a distribution is taxable is to determine the cost of your pension or annuity. Taxact 2013 In general, your cost is your net investment in the contract as of the annuity starting date (or the date of the distribution, if earlier). Taxact 2013 To find this amount, you must first figure the total premiums, contributions, or other amounts you paid. Taxact 2013 This includes the amounts your employer contributed that were taxable to you when paid. Taxact 2013 (However, see Foreign employment contributions , later. Taxact 2013 ) It does not include amounts withheld from your pay on a tax-deferred basis (money that was taken out of your gross pay before taxes were deducted). Taxact 2013 It also does not include amounts you contributed for health and accident benefits (including any additional premiums paid for double indemnity or disability benefits). Taxact 2013 From this total cost you must subtract the following amounts. Taxact 2013 Any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income and that you received by the later of the annuity starting date or the date on which you received your first payment. Taxact 2013 Any other tax-free amounts you received under the contract or plan by the later of the dates in (1). Taxact 2013 If you must use the Simplified Method for your annuity payments, the tax-free part of any single-sum payment received in connection with the start of the annuity payments, regardless of when you received it. Taxact 2013 (See Simplified Method , later, for information on its required use. Taxact 2013 ) If you use the General Rule for your annuity payments, the value of the refund feature in your annuity contract. Taxact 2013 (See General Rule , later, for information on its use. Taxact 2013 ) Your annuity contract has a refund feature if the annuity payments are for your life (or the lives of you and your survivor) and payments in the nature of a refund of the annuity's cost will be made to your beneficiary or estate if all annuitants die before a stated amount or a stated number of payments are made. Taxact 2013 For more information, see Publication 939. Taxact 2013 The tax treatment of the items described in (1) through (3) is discussed later under Taxation of Nonperiodic Payments . Taxact 2013 Form 1099-R. Taxact 2013 If you began receiving periodic payments of a life annuity in 2013, the payer should show your total contributions to the plan in box 9b of your 2013 Form 1099-R. Taxact 2013 Annuity starting date defined. Taxact 2013   Your annuity starting date is the later of the first day of the first period for which you received a payment or the date the plan's obligations became fixed. Taxact 2013 Example. Taxact 2013 On January 1, you completed all your payments required under an annuity contract providing for monthly payments starting on August 1 for the period beginning July 1. Taxact 2013 The annuity starting date is July 1. Taxact 2013 This is the date you use in figuring the cost of the contract and selecting the appropriate number from Table 1 for line 3 of the Simplified Method Worksheet. Taxact 2013 Designated Roth accounts. Taxact 2013   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. Taxact 2013 Your cost will also include any in-plan Roth rollovers you included in income. Taxact 2013 Foreign employment contributions. Taxact 2013   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Taxact 2013 The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (not including the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) but only if the contributions would be excludible from your gross income had they been paid directly to you. Taxact 2013 Foreign employment contributions while a nonresident alien. Taxact 2013   In determining your cost, special rules apply if you are a U. Taxact 2013 S. Taxact 2013 citizen or resident alien who received distributions in 2013 from a plan to which contributions were made while you were a nonresident alien. Taxact 2013 Your contributions and your employer's contributions are not included in your cost if the contribution: Was made based on compensation which was for services performed outside the United States while you were a nonresident alien, and Was not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if paid as cash compensation when the services were performed. Taxact 2013 Taxation of Periodic Payments This section explains how the periodic payments you receive from a pension or annuity plan are taxed. Taxact 2013 Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Taxact 2013 These payments are also known as amounts received as an annuity. Taxact 2013 If you receive an amount from your plan that is not a periodic payment, see Taxation of Nonperiodic Payments , later. Taxact 2013 In general, you can recover the cost of your pension or annuity tax free over the period you are to receive the payments. Taxact 2013 The amount of each payment that is more than the part that represents your cost is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Taxact 2013 Designated Roth accounts. Taxact 2013   If you receive a qualified distribution from a designated Roth account, the distribution is not included in your gross income. Taxact 2013 This applies to both your cost in the account and income earned on that account. Taxact 2013 A qualified distribution is generally a distribution that is: Made after a 5-tax-year period of participation, and Made on or after the date you reach age 59½, made to a beneficiary or your estate on or after your death, or attributable to your being disabled. Taxact 2013   If the distribution is not a qualified distribution, the rules discussed in this section apply. Taxact 2013 The designated Roth account is treated as a separate contract. Taxact 2013 Period of participation. Taxact 2013   The 5-tax-year period of participation is the 5-tax-year period beginning with the first tax year for which the participant made a designated Roth contribution to the plan. Taxact 2013 Therefore, for designated Roth contributions made for 2013, the first year for which a qualified distribution can be made is 2018. Taxact 2013   However, if a direct rollover is made to the plan from a designated Roth account under another plan, the 5-tax-year period for the recipient plan begins with the first tax year for which the participant first had designated Roth contributions made to the other plan. Taxact 2013   Your 401(k), 403(b), or 457(b) plan may permit you to roll over amounts from those plans to a designated Roth account within the same plan. Taxact 2013 This is known as an in-plan Roth rollover. Taxact 2013 For more details, see In-plan Roth rollovers , later. Taxact 2013 Fully Taxable Payments The pension or annuity payments that you receive are fully taxable if you have no cost in the contract because any of the following situations applies to you (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Taxact 2013 You did not pay anything or are not considered to have paid anything for your pension or annuity. Taxact 2013 Amounts withheld from your pay on a tax-deferred basis are not considered part of the cost of the pension or annuity payment. Taxact 2013 Your employer did not withhold contributions from your salary. Taxact 2013 You got back all of your contributions tax free in prior years (however, see Exclusion not limited to cost under Partly Taxable Payments, later). Taxact 2013 Report the total amount you got on Form 1040, line 16b; Form 1040A, line 12b; or on Form 1040NR, line 17b. Taxact 2013 You should make no entry on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Taxact 2013 Deductible voluntary employee contributions. Taxact 2013   Distributions you receive that are based on your accumulated deductible voluntary employee contributions are generally fully taxable in the year distributed to you. Taxact 2013 Accumulated deductible voluntary employee contributions include net earnings on the contributions. Taxact 2013 If distributed as part of a lump sum, they do not qualify for the 10-year tax option or capital gain treatment, explained later. Taxact 2013 Partly Taxable Payments If you have a cost to recover from your pension or annuity plan (see Cost (Investment in the Contract) , earlier), you can exclude part of each annuity payment from income as a recovery of your cost. Taxact 2013 This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. Taxact 2013 The rest of each payment is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Taxact 2013 You figure the tax-free part of the payment using one of the following methods. Taxact 2013 Simplified Method. Taxact 2013 You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). Taxact 2013 You cannot use this method if your annuity is paid under a nonqualified plan. Taxact 2013 General Rule. Taxact 2013 You must use this method if your annuity is paid under a nonqualified plan. Taxact 2013 You generally cannot use this method if your annuity is paid under a qualified plan. Taxact 2013 You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Taxact 2013 If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. Taxact 2013 Qualified plan annuity starting before November 19, 1996. Taxact 2013   If your annuity is paid under a qualified plan and your annuity starting date (defined earlier under Cost (Investment in the Contract) ) is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the Simplified Method or the General Rule. Taxact 2013 If your annuity starting date is before July 2, 1986, you use the General Rule unless your annuity qualified for the Three-Year Rule. Taxact 2013 If you used the Three-Year Rule (which was repealed for annuities starting after July 1, 1986), your annuity payments are generally now fully taxable. Taxact 2013 Exclusion limit. Taxact 2013   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Taxact 2013 Once your annuity starting date is determined, it does not change. Taxact 2013 If you calculate the taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. Taxact 2013 That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. Taxact 2013 Exclusion limited to cost. Taxact 2013   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a recovery of the cost cannot exceed your total cost. Taxact 2013 Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Taxact 2013 This deduction is not subject to the 2%-of-adjusted-gross-income limit. Taxact 2013 Example 1. Taxact 2013 Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. Taxact 2013 The total cost of your annuity is $12,000. Taxact 2013 Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). Taxact 2013 After that, your annuity payments are generally fully taxable. Taxact 2013 Example 2. Taxact 2013 The facts are the same as in Example 1, except you die (with no surviving annuitant) after the eighth year of retirement. Taxact 2013 You have recovered tax free only $9,600 (8 × $1,200) of your cost. Taxact 2013 An itemized deduction for your unrecovered cost of $2,400 ($12,000 – $9,600) can be taken on your final return. Taxact 2013 Exclusion not limited to cost. Taxact 2013   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Taxact 2013 If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Taxact 2013 The total exclusion may be more than your cost. Taxact 2013 Simplified Method Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. Taxact 2013 For an annuity that is payable for the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Taxact 2013 For any other annuity, this number is the number of monthly annuity payments under the contract. Taxact 2013 Who must use the Simplified Method. Taxact 2013   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you meet both of the following conditions. Taxact 2013 You receive your pension or annuity payments from any of the following plans. Taxact 2013 A qualified employee plan. Taxact 2013 A qualified employee annuity. Taxact 2013 A tax-sheltered annuity plan (403(b) plan). Taxact 2013 On your annuity starting date, at least one of the following conditions applies to you. Taxact 2013 You are under age 75. Taxact 2013 You are entitled to less than 5 years of guaranteed payments. Taxact 2013 Guaranteed payments. Taxact 2013   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Taxact 2013 If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Taxact 2013 Annuity starting before November 19, 1996. Taxact 2013   If your annuity starting date is after July 1, 1986, and before November 19, 1996, and you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Taxact 2013 You could have chosen to use the Simplified Method if your annuity is payable for your life (or the lives of you and your survivor annuitant) and you met both of the conditions listed earlier under Who must use the Simplified Method . Taxact 2013 Who cannot use the Simplified Method. Taxact 2013   You cannot use the Simplified Method if you receive your pension or annuity from a nonqualified plan or otherwise do not meet the conditions described in the preceding discussion. Taxact 2013 See General Rule , later. Taxact 2013 How to use the Simplified Method. Taxact 2013    Complete Worksheet A in the back of this publication to figure your taxable annuity for 2013. Taxact 2013 Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Taxact 2013   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Taxact 2013 How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Taxact 2013 For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Taxact 2013    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Taxact 2013 Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Taxact 2013 Single-life annuity. Taxact 2013   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Taxact 2013 Enter on line 3 the number shown for your age on your annuity starting date. Taxact 2013 This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Taxact 2013 Multiple-lives annuity. Taxact 2013   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Taxact 2013 Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Taxact 2013 For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Taxact 2013 For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Taxact 2013 Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Taxact 2013   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Taxact 2013 Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Taxact 2013 This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Taxact 2013 Fixed-period annuity. Taxact 2013   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Taxact 2013 Line 6. Taxact 2013   The amount on line 6 should include all amounts that could have been recovered in prior years. Taxact 2013 If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Taxact 2013 Example. Taxact 2013 Bill Smith, age 65, began receiving retirement benefits in 2013 under a joint and survivor annuity. Taxact 2013 Bill's annuity starting date is January 1, 2013. Taxact 2013 The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. Taxact 2013 Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Taxact 2013 Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. Taxact 2013 Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Taxact 2013 Because his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of Worksheet A in completing line 3 of the worksheet. Taxact 2013 His completed worksheet is shown later. Taxact 2013 Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Taxact 2013 Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Taxact 2013 The full amount of any annuity payments received after 310 payments are paid must be included in gross income. Taxact 2013 If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. Taxact 2013 This deduction is not subject to the 2%-of-adjusted-gross-income limit. Taxact 2013 Worksheet A. Taxact 2013 Simplified Method Worksheet for Bill Smith 1. Taxact 2013 Enter the total pension or annuity payments received this year. Taxact 2013 Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Taxact 2013 $14,400 2. Taxact 2013 Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion. Taxact 2013 * See Cost (Investment in the Contract) , earlier 2. Taxact 2013 31,000   Note. Taxact 2013 If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Taxact 2013 Otherwise, go to line 3. Taxact 2013     3. Taxact 2013 Enter the appropriate number from Table 1 below. Taxact 2013 But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. Taxact 2013 310 4. Taxact 2013 Divide line 2 by the number on line 3 4. Taxact 2013 100 5. Taxact 2013 Multiply line 4 by the number of months for which this year's payments were made. Taxact 2013 If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Taxact 2013 Otherwise, go to line 6 5. Taxact 2013 1,200 6. Taxact 2013 Enter any amount previously recovered tax free in years after 1986. Taxact 2013 This is the amount shown on line 10 of your worksheet for last year 6. Taxact 2013 -0- 7. Taxact 2013 Subtract line 6 from line 2 7. Taxact 2013 31,000 8. Taxact 2013 Enter the smaller of line 5 or line 7 8. Taxact 2013 1,200 9. Taxact 2013 Taxable amount for year. Taxact 2013 Subtract line 8 from line 1. Taxact 2013 Enter the result, but not less than zero. Taxact 2013 Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Taxact 2013 Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Taxact 2013 If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers , earlier, before entering an amount on your tax return 9. Taxact 2013 $13,200 10. Taxact 2013 Was your annuity starting date before 1987? □ Yes. Taxact 2013 STOP. Taxact 2013 Do not complete the rest of this worksheet. Taxact 2013  ☑ No. Taxact 2013 Add lines 6 and 8. Taxact 2013 This is the amount you have recovered tax free through 2013. Taxact 2013 You will need this number if you need to fill out this worksheet next year 10. Taxact 2013 1,200 11. Taxact 2013 Balance of cost to be recovered. Taxact 2013 Subtract line 10 from line 2. Taxact 2013 If zero, you will not have to complete this worksheet next year. Taxact 2013 The payments you receive next year will generally be fully taxable 11. Taxact 2013 $29,800         * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Taxact 2013           Table 1 for Line 3 Above       AND your annuity starting date was—     IF the age at annuity starting date was. Taxact 2013 . Taxact 2013 . Taxact 2013 BEFORE November 19, 1996, enter on line 3. Taxact 2013 . Taxact 2013 . Taxact 2013 AFTER November 18, 1996, enter on line 3. Taxact 2013 . Taxact 2013 . Taxact 2013     55 or under 300 360     56-60 260 310     61-65 240 260     66-70 170 210     71 or older 120 160     Table 2 for Line 3 Above     IF the combined ages at  annuity starting date were. Taxact 2013 . Taxact 2013 . Taxact 2013 THEN enter on line 3. Taxact 2013 . Taxact 2013 . Taxact 2013     110 or under   410     111-120   360     121-130   310     131-140   260     141 or older   210   Multiple annuitants. Taxact 2013   If you and one or more other annuitants receive payments at the same time, you exclude from each annuity payment a pro rata share of the monthly tax-free amount. Taxact 2013 Figure your share by taking the following steps. Taxact 2013 Complete your worksheet through line 4 to figure the monthly tax-free amount. Taxact 2013 Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants. Taxact 2013 Multiply the amount on line 4 of your worksheet by the amount figured in (2) above. Taxact 2013 The result is your share of the monthly tax-free amount. Taxact 2013   Replace the amount on line 4 of the worksheet with the result in (3) above. Taxact 2013 Enter that amount on line 4 of your worksheet each year. Taxact 2013 General Rule Under the General Rule, you determine the tax-free part of each annuity payment based on the ratio of the cost of the contract to the total expected return. Taxact 2013 Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Taxact 2013 To figure it, you must use life expectancy (actuarial) tables prescribed by the IRS. Taxact 2013 Who must use the General Rule. Taxact 2013   You must use the General Rule if you receive pension or annuity payments from: A nonqualified plan (such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan), or A qualified plan if you are age 75 or older on your annuity starting date and your annuity payments are guaranteed for at least 5 years. Taxact 2013 Annuity starting before November 19, 1996. Taxact 2013   If your annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule for either circumstance just described. Taxact 2013 You also had to use it for any fixed-period annuity. Taxact 2013 If you did not have to use the General Rule, you could have chosen to use it. Taxact 2013 If your annuity starting date is before July 2, 1986, you had to use the General Rule unless you could use the Three-Year Rule. Taxact 2013   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Taxact 2013 Who cannot use the General Rule. Taxact 2013   You cannot use the General Rule if you receive your pension or annuity from a qualified plan and none of the circumstances described in the preceding discussions apply to you. Taxact 2013 See Simplified Method , earlier. Taxact 2013 More information. Taxact 2013   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. Taxact 2013 Taxation of Nonperiodic Payments This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity plan are taxed. Taxact 2013 Nonperiodic distributions are also known as amounts not received as an annuity. Taxact 2013 They include all payments other than periodic payments and corrective distributions. Taxact 2013 For example, the following items are treated as nonperiodic distributions. Taxact 2013 Cash withdrawals. Taxact 2013 Distributions of current earnings (dividends) on your investment. Taxact 2013 However, do not include these distributions in your income to the extent the insurer keeps them to pay premiums or other consideration for the contract. Taxact 2013 Certain loans. Taxact 2013 See Loans Treated as Distributions , later. Taxact 2013 The value of annuity contracts transferred without full and adequate consideration. Taxact 2013 See Transfers of Annuity Contracts , later. Taxact 2013 Corrective distributions of excess plan contributions. Taxact 2013   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. Taxact 2013 To correct an excess, your plan may distribute it to you (along with any income earned on the excess). Taxact 2013 Although the plan reports the corrective distributions on Form 1099-R, the distribution is not treated as a nonperiodic distribution from the plan. Taxact 2013 It is not subject to the allocation rules explained in the following discussion, it cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Taxact 2013    If your retirement plan made a corrective distribution of excess amounts (excess deferrals, excess contributions, or excess annual additions), your Form 1099-R should have the code “8,” “B,” “P,” or “E” in box 7. Taxact 2013   For information on plan contribution limits and how to report corrective distributions of excess contributions, see Retirement Plan Contributions under Employee Compensation in Publication 525. Taxact 2013 Figuring the Taxable Amount How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity starting date, or on or after the annuity starting date. Taxact 2013 If it is made before the annuity starting date, its tax treatment also depends on whether it is made under a qualified or nonqualified plan. Taxact 2013 If it is made under a nonqualified plan, its tax treatment depends on whether it fully discharges the contract, is received under certain life insurance or endowment contracts, or is allocable to an investment you made before August 14, 1982. Taxact 2013 You may be able to roll over the taxable amount of a nonperiodic distribution from a qualified retirement plan into another qualified retirement plan or a traditional IRA tax free. Taxact 2013 See Rollovers, later. Taxact 2013 If you do not make a tax-free rollover and the distribution qualifies as a lump-sum distribution, you may be able to elect an optional method of figuring the tax on the taxable amount. Taxact 2013 See Lump-Sum Distributions, later. Taxact 2013 Annuity starting date. Taxact 2013   The annuity starting date is either the first day of the first period for which you receive an annuity payment under the contract or the date on which the obligation under the contract becomes fixed, whichever is later. Taxact 2013 Distributions of employer securities. Taxact 2013    If you receive a distribution of employer securities from a qualified retirement plan, you may be able to defer the tax on the net unrealized appreciation (NUA) in the securities. Taxact 2013 The NUA is the net increase in the securities' value while they were in the trust. Taxact 2013 This tax deferral applies to distributions of the employer corporation's stocks, bonds, registered debentures, and debentures with interest coupons attached. Taxact 2013   If the distribution is a lump-sum distribution, tax is deferred on all of the NUA unless you choose to include it in your income for the year of the distribution. Taxact 2013    A lump-sum distribution for this purpose is the distribution or payment of a plan participant's entire balance (within a single tax year) from all of the employer's qualified plans of one kind (pension, profit-sharing, or stock bonus plans), but only if paid: Because of the plan participant's death, After the participant reaches age 59½, Because the participant, if an employee, separates from service, or After the participant, if a self-employed individual, becomes totally and permanently disabled. Taxact 2013    If you choose to include NUA in your income for the year of the distribution and the participant was born before January 2, 1936, you may be able to figure the tax on the NUA using the optional methods described und