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Turbotax Free State Filing

Turbotax free state filing 4. Turbotax free state filing   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. Turbotax free state filing Loan secured by benefits. Turbotax free state filing Waiver of survivor benefits. Turbotax free state filing Waiver of 30-day waiting period before annuity starting date. Turbotax free state filing Involuntary cash-out of benefits not more than dollar limit. Turbotax free state filing Exception for certain loans. Turbotax free state filing Exception for QDRO. Turbotax free state filing SIMPLE and safe harbor 401(k) plan exception. Turbotax free state filing Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. Turbotax free state filing Installment percentage. Turbotax free state filing Extended period for making contributions. Turbotax free state filing 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. Turbotax free state filing Caution: Form 5500-EZ not required. Turbotax free state filing Form 5500. Turbotax free state filing Electronic filing of Forms 5500 and 5500-SF. Turbotax free state filing 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. Turbotax free state filing dol. Turbotax free state filing gov/ebsa/pdf/2013-5500. Turbotax free state filing pdf www. Turbotax free state filing dol. Turbotax free state filing gov/ebsa/pdf/2013-5500-SF. Turbotax free state filing pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Turbotax free state filing 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Turbotax free state filing 1040 U. Turbotax free state filing S. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing R. Turbotax free state filing 10 plans. Turbotax free state filing A sole proprietor or a partnership can set up one of these plans. Turbotax free state filing A common-law employee or a partner cannot set up one of these plans. Turbotax free state filing The plans described here can also be set up and maintained by employers that are corporations. Turbotax free state filing All the rules discussed here apply to corporations except where specifically limited to the self-employed. Turbotax free state filing The plan must be for the exclusive benefit of employees or their beneficiaries. Turbotax free state filing These qualified plans can include coverage for a self-employed individual. Turbotax free state filing As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Turbotax free state filing The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Turbotax free state filing Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. Turbotax free state filing 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. Turbotax free state filing Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. Turbotax free state filing It provides benefits to a participant largely based on the amount contributed to that participant's account. Turbotax free state filing Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. Turbotax free state filing A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. Turbotax free state filing Profit-sharing plan. Turbotax free state filing   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). Turbotax free state filing 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. Turbotax free state filing An employer may even make no contribution to the plan for a given year. Turbotax free state filing   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. Turbotax free state filing   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). Turbotax free state filing Money purchase pension plan. Turbotax free state filing   Contributions to a money purchase pension plan are fixed and are not based on your business profits. Turbotax free state filing 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. Turbotax free state filing This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. Turbotax free state filing Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. Turbotax free state filing Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Turbotax free state filing Actuarial assumptions and computations are required to figure these contributions. Turbotax free state filing Generally, you will need continuing professional help to have a defined benefit plan. Turbotax free state filing Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. Turbotax free state filing 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. Turbotax free state filing The following is a brief overview of important qualification rules that generally have not yet been discussed. Turbotax free state filing It is not intended to be all-inclusive. Turbotax free state filing See Setting Up a Qualified Plan , later. Turbotax free state filing Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. Turbotax free state filing 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. Turbotax free state filing Plan assets must not be diverted. Turbotax free state filing   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. Turbotax free state filing As a general rule, the assets cannot be diverted to the employer. Turbotax free state filing Minimum coverage requirement must be met. Turbotax free state filing   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. Turbotax free state filing 50 employees, or The greater of: 40% of all employees, or Two employees. Turbotax free state filing If there is only one employee, the plan must benefit that employee. Turbotax free state filing Contributions or benefits must not discriminate. Turbotax free state filing   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. Turbotax free state filing Contributions and benefits must not be more than certain limits. Turbotax free state filing   Your plan must not provide for contributions or benefits that are more than certain limits. Turbotax free state filing 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. Turbotax free state filing These limits are discussed later in this chapter under Contributions. Turbotax free state filing Minimum vesting standard must be met. Turbotax free state filing   Your plan must satisfy certain requirements regarding when benefits vest. Turbotax free state filing A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. Turbotax free state filing A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. Turbotax free state filing Special rules apply to forfeited benefit amounts. Turbotax free state filing 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. Turbotax free state filing   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. Turbotax free state filing Forfeitures must be used instead to reduce employer contributions. Turbotax free state filing Participation. Turbotax free state filing   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. Turbotax free state filing Has reached age 21. Turbotax free state filing 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). Turbotax free state filing A plan cannot exclude an employee because he or she has reached a specified age. Turbotax free state filing Leased employee. Turbotax free state filing   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. Turbotax free state filing These rules include those in all the following areas. Turbotax free state filing Nondiscrimination in coverage, contributions, and benefits. Turbotax free state filing Minimum age and service requirements. Turbotax free state filing Vesting. Turbotax free state filing Limits on contributions and benefits. Turbotax free state filing Top-heavy plan requirements. Turbotax free state filing Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. Turbotax free state filing Benefit payment must begin when required. Turbotax free state filing   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. Turbotax free state filing The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. Turbotax free state filing The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. Turbotax free state filing The plan year in which the participant separates from service. Turbotax free state filing Early retirement. Turbotax free state filing   Your plan can provide for payment of retirement benefits before the normal retirement age. Turbotax free state filing 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. Turbotax free state filing Satisfies the service requirement for the early retirement benefit. Turbotax free state filing Separates from service with a nonforfeitable right to an accrued benefit. Turbotax free state filing The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. Turbotax free state filing Required minimum distributions. Turbotax free state filing   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. Turbotax free state filing See Required Distributions , under Distributions, later. Turbotax free state filing Survivor benefits. Turbotax free state filing   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. Turbotax free state filing A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. Turbotax free state filing A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. Turbotax free state filing   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. Turbotax free state filing The participant does not choose benefits in the form of a life annuity. Turbotax free state filing 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. Turbotax free state filing The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. Turbotax free state filing Loan secured by benefits. Turbotax free state filing   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. Turbotax free state filing Waiver of survivor benefits. Turbotax free state filing   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. Turbotax free state filing The plan also must allow the participant to withdraw the waiver. Turbotax free state filing The spouse's consent must be witnessed by a plan representative or notary public. Turbotax free state filing Waiver of 30-day waiting period before annuity starting date. Turbotax free state filing    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. Turbotax free state filing   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. Turbotax free state filing Involuntary cash-out of benefits not more than dollar limit. Turbotax free state filing   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. Turbotax free state filing   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. Turbotax free state filing 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. Turbotax free state filing   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. Turbotax free state filing   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. Turbotax free state filing A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. Turbotax free state filing See Section 402(f) Notice under Distributions, later, for more details. Turbotax free state filing Consolidation, merger, or transfer of assets or liabilities. Turbotax free state filing   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. Turbotax free state filing (if the plan had then terminated). Turbotax free state filing Benefits must not be assigned or alienated. Turbotax free state filing   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. Turbotax free state filing Exception for certain loans. Turbotax free state filing   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. Turbotax free state filing A disqualified person is defined later in this chapter under Prohibited Transactions. Turbotax free state filing Exception for QDRO. Turbotax free state filing   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. Turbotax free state filing   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. Turbotax free state filing 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. Turbotax free state filing No benefit reduction for social security increases. Turbotax free state filing   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. Turbotax free state filing This rule also applies to plans supplementing the benefits provided by other federal or state laws. Turbotax free state filing Elective deferrals must be limited. Turbotax free state filing   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. Turbotax free state filing See Limit on Elective Deferrals later in this chapter. Turbotax free state filing Top-heavy plan requirements. Turbotax free state filing   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. Turbotax free state filing   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. Turbotax free state filing Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. Turbotax free state filing   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. Turbotax free state filing These qualification requirements for top-heavy plans are explained in section 416 and its regulations. Turbotax free state filing SIMPLE and safe harbor 401(k) plan exception. Turbotax free state filing   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. Turbotax free state filing QACAs (discussed later) also are not subject to top-heavy requirements. Turbotax free state filing Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. Turbotax free state filing First you adopt a written plan. Turbotax free state filing Then you invest the plan assets. Turbotax free state filing You, the employer, are responsible for setting up and maintaining the plan. Turbotax free state filing If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. Turbotax free state filing If you have employees, see Participation, under Qualification Rules, earlier. Turbotax free state filing Set-up deadline. Turbotax free state filing   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). Turbotax free state filing Credit for startup costs. Turbotax free state filing   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. Turbotax free state filing For more information, see Credit for startup costs under Reminders, earlier. Turbotax free state filing Adopting a Written Plan You must adopt a written plan. Turbotax free state filing The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. Turbotax free state filing Or it can be an individually designed plan. Turbotax free state filing Written plan requirement. Turbotax free state filing   To qualify, the plan you set up must be in writing and must be communicated to your employees. Turbotax free state filing The plan's provisions must be stated in the plan. Turbotax free state filing It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. Turbotax free state filing Master or prototype plans. Turbotax free state filing   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. Turbotax free state filing Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). Turbotax free state filing 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. Turbotax free state filing Under a prototype plan, a separate trust or custodial account is established for each employer. Turbotax free state filing Plan providers. Turbotax free state filing   The following organizations generally can provide IRS-approved master or prototype plans. Turbotax free state filing Banks (including some savings and loan associations and federally insured credit unions). Turbotax free state filing Trade or professional organizations. Turbotax free state filing Insurance companies. Turbotax free state filing Mutual funds. Turbotax free state filing Individually designed plan. Turbotax free state filing   If you prefer, you can set up an individually designed plan to meet specific needs. Turbotax free state filing Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. Turbotax free state filing You may need professional help for this. Turbotax free state filing See Rev. Turbotax free state filing Proc. Turbotax free state filing 2014-6, 2014-1 I. Turbotax free state filing R. Turbotax free state filing B. Turbotax free state filing 198, available at www. Turbotax free state filing irs. Turbotax free state filing gov/irb/2014-1_IRB/ar10. Turbotax free state filing html, as annually updated, that may help you decide whether to apply for approval. Turbotax free state filing Internal Revenue Bulletins are available on the IRS website at IRS. Turbotax free state filing gov They are also available at most IRS offices and at certain libraries. Turbotax free state filing User fee. Turbotax free state filing   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. Turbotax free state filing At least one of them must be a non-highly compensated employee participating in the plan. Turbotax free state filing The fee does not apply to requests made by the later of the following dates. Turbotax free state filing The end of the 5th plan year the plan is in effect. Turbotax free state filing The end of any remedial amendment period for the plan that begins within the first 5 plan years. Turbotax free state filing The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. Turbotax free state filing   For more information about whether the user fee applies, see Rev. Turbotax free state filing Proc. Turbotax free state filing 2014-8, 2014-1 I. Turbotax free state filing R. Turbotax free state filing B. Turbotax free state filing 242, available at www. Turbotax free state filing irs. Turbotax free state filing gov/irb/2014-1_IRB/ar12. Turbotax free state filing html, as may be annually updated; Notice 2003-49, 2003-32 I. Turbotax free state filing R. Turbotax free state filing B. Turbotax free state filing 294, available at www. Turbotax free state filing irs. Turbotax free state filing gov/irb/2003-32_IRB/ar13. Turbotax free state filing html; and Notice 2011-86, 2011-45 I. Turbotax free state filing R. Turbotax free state filing B. Turbotax free state filing 698, available at www. Turbotax free state filing irs. Turbotax free state filing gov/irb/2011-45_IRB/ar11. Turbotax free state filing html. Turbotax free state filing Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. Turbotax free state filing You can establish a trust or custodial account to invest the funds. Turbotax free state filing You, the trust, or the custodial account can buy an annuity contract from an insurance company. Turbotax free state filing Life insurance can be included only if it is incidental to the retirement benefits. Turbotax free state filing You set up a trust by a legal instrument (written document). Turbotax free state filing You may need professional help to do this. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. Turbotax free state filing Other plan requirements. Turbotax free state filing   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing For information on this funding requirement, see section 412 and its regulations. Turbotax free state filing Quarterly installments of required contributions. Turbotax free state filing   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. Turbotax free state filing If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. Turbotax free state filing Due dates. Turbotax free state filing   The due dates for the installments are 15 days after the end of each quarter. Turbotax free state filing For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). Turbotax free state filing Installment percentage. Turbotax free state filing   Each quarterly installment must be 25% of the required annual payment. Turbotax free state filing Extended period for making contributions. Turbotax free state filing   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. Turbotax free state filing Contributions A qualified plan is generally funded by your contributions. Turbotax free state filing However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. Turbotax free state filing See Employee Contributions and Elective Deferrals later. Turbotax free state filing Contributions deadline. Turbotax free state filing   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. Turbotax free state filing Self-employed individual. Turbotax free state filing   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. Turbotax free state filing Your net earnings must be from your personal services, not from your investments. Turbotax free state filing 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. Turbotax free state filing Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. Turbotax free state filing There are also limits on the amount you can deduct. Turbotax free state filing See Deduction Limits , later. Turbotax free state filing Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. Turbotax free state filing The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. Turbotax free state filing Defined benefit plan. Turbotax free state filing   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. Turbotax free state filing 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. Turbotax free state filing $205,000 ($210,000 for 2014). Turbotax free state filing Defined contribution plan. Turbotax free state filing   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. Turbotax free state filing 100% of the participant's compensation. Turbotax free state filing $51,000 ($52,000 for 2014). Turbotax free state filing   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. Turbotax free state filing Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. Turbotax free state filing Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. Turbotax free state filing 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. Turbotax free state filing See Regulations sections 1. Turbotax free state filing 401(k)-2 and 1. Turbotax free state filing 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Turbotax free state filing When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. Turbotax free state filing But you can apply them to the previous year if all the following requirements are met. Turbotax free state filing You make them by the due date of your tax return for the previous year (plus extensions). Turbotax free state filing The plan was established by the end of the previous year. Turbotax free state filing The plan treats the contributions as though it had received them on the last day of the previous year. Turbotax free state filing You do either of the following. Turbotax free state filing You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. Turbotax free state filing You deduct the contributions on your tax return for the previous year. Turbotax free state filing A partnership shows contributions for partners on Form 1065. Turbotax free state filing Employer's promissory note. Turbotax free state filing   Your promissory note made out to the plan is not a payment that qualifies for the deduction. Turbotax free state filing Also, issuing this note is a prohibited transaction subject to tax. Turbotax free state filing See Prohibited Transactions , later. Turbotax free state filing Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Turbotax free state filing The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Turbotax free state filing Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. Turbotax free state filing Defined contribution plans. Turbotax free state filing   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. Turbotax free state filing If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. Turbotax free state filing See Deduction Limit for Self-Employed Individuals , later. Turbotax free state filing   When figuring the deduction limit, the following rules apply. Turbotax free state filing Elective deferrals (discussed later) are not subject to the limit. Turbotax free state filing Compensation includes elective deferrals. Turbotax free state filing The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). Turbotax free state filing Defined benefit plans. Turbotax free state filing   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. Turbotax free state filing Consequently, an actuary must figure your deduction limit. Turbotax free state filing    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. Turbotax free state filing Table 4–1. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing Compensation is your net earnings from self-employment, defined in chapter 1. Turbotax free state filing This definition takes into account both the following items. Turbotax free state filing The deduction for the deductible part of your self-employment tax. Turbotax free state filing The deduction for contributions on your behalf to the plan. Turbotax free state filing The deduction for your own contributions and your net earnings depend on each other. Turbotax free state filing For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. Turbotax free state filing To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. Turbotax free state filing Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Turbotax free state filing Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Turbotax free state filing 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. Turbotax free state filing Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Turbotax free state filing (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. Turbotax free state filing ) 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. Turbotax free state filing Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. Turbotax free state filing For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. Turbotax free state filing However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. Turbotax free state filing See Deduction Limit for Self-Employed Individuals, earlier. Turbotax free state filing The amount you carry over and deduct may be subject to the excise tax discussed next. Turbotax free state filing Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. Turbotax free state filing 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. Turbotax free state filing In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. Turbotax free state filing Special rule for self-employed individuals. Turbotax free state filing   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. Turbotax free state filing 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. Turbotax free state filing See Minimum Funding Requirement , earlier. Turbotax free state filing Reporting the tax. Turbotax free state filing   You must report the tax on your nondeductible contributions on Form 5330. Turbotax free state filing Form 5330 includes a computation of the tax. Turbotax free state filing See the separate instructions for completing the form. Turbotax free state filing 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. Turbotax free state filing A plan with this type of arrangement is popularly known as a “401(k) plan. Turbotax free state filing ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. Turbotax free state filing ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. Turbotax free state filing In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. Turbotax free state filing A profit-sharing plan. Turbotax free state filing A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. Turbotax free state filing Partnership. Turbotax free state filing   A partnership can have a 401(k) plan. Turbotax free state filing Restriction on conditions of participation. Turbotax free state filing   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. Turbotax free state filing Matching contributions. Turbotax free state filing   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. Turbotax free state filing 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. Turbotax free state filing Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. Turbotax free state filing Nonelective contributions. Turbotax free state filing   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. Turbotax free state filing These are called nonelective contributions. Turbotax free state filing Employee compensation limit. Turbotax free state filing   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. Turbotax free state filing This limit is $260,000 in 2014. Turbotax free state filing SIMPLE 401(k) plan. Turbotax free state filing   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. Turbotax free state filing A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. Turbotax free state filing For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. Turbotax free state filing Distributions. Turbotax free state filing   Certain rules apply to distributions from 401(k) plans. Turbotax free state filing See Distributions From 401(k) Plans , later. Turbotax free state filing Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. Turbotax free state filing This limit applies without regard to community property laws. Turbotax free state filing Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. Turbotax free state filing For 2013 and 2014, the basic limit on elective deferrals is $17,500. Turbotax free state filing This limit applies to all salary reduction contributions and elective deferrals. Turbotax free state filing If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. Turbotax free state filing Catch-up contributions. Turbotax free state filing   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. Turbotax free state filing The catch-up contribution limit for 2013 and 2014 is $5,500. Turbotax free state filing 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). Turbotax free state filing However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Turbotax free state filing The catch-up contribution limit. Turbotax free state filing The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Turbotax free state filing Treatment of contributions. Turbotax free state filing   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. Turbotax free state filing Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. Turbotax free state filing Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. Turbotax free state filing Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Turbotax free state filing Forfeiture. Turbotax free state filing   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. Turbotax free state filing Reporting on Form W-2. Turbotax free state filing   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Turbotax free state filing You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Turbotax free state filing You must also include them in box 12. Turbotax free state filing Mark the “Retirement plan” checkbox in box 13. Turbotax free state filing For more information, see the Form W-2 instructions. Turbotax free state filing Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. Turbotax free state filing 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. Turbotax free state filing These contributions are elective deferrals. Turbotax free state filing An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). Turbotax free state filing For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. Turbotax free state filing Eligible automatic contribution arrangement. Turbotax free state filing   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. Turbotax free state filing This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). Turbotax free state filing There is no required deferral percentage. Turbotax free state filing Withdrawals. Turbotax free state filing   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. Turbotax free state filing The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. Turbotax free state filing The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. Turbotax free state filing   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. Turbotax free state filing The additional 10% tax on early distributions will not apply to the distribution. Turbotax free state filing Notice requirement. Turbotax free state filing   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. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing The notice also must explain how contributions will be invested in the absence of an investment election by the employee. Turbotax free state filing Qualified automatic contribution arrangement. Turbotax free state filing    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. Turbotax free state filing It contains an automatic enrollment feature, and mandatory employer contributions are required. Turbotax free state filing If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). Turbotax free state filing Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. Turbotax free state filing 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. Turbotax free state filing In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). Turbotax free state filing If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. Turbotax free state filing It must be applied uniformly. Turbotax free state filing It must not exceed 10%. Turbotax free state filing It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. Turbotax free state filing It must increase to at least 4% in the following plan year. Turbotax free state filing It must increase to at least 5% in the following plan year. Turbotax free state filing It must increase to at least 6% in subsequent plan years. Turbotax free state filing Matching or nonelective contributions. Turbotax free state filing   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. Turbotax free state filing Matching contributions. Turbotax free state filing You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. Turbotax free state filing An amount equal to 100% of elective deferrals, up to 1% of compensation. Turbotax free state filing An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. Turbotax free state filing Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. Turbotax free state filing The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Turbotax free state filing Nonelective contributions. Turbotax free state filing 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. Turbotax free state filing Vesting requirements. Turbotax free state filing   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. Turbotax free state filing These contributions are subject to special withdrawal restrictions, discussed later. Turbotax free state filing Notice requirements. Turbotax free state filing   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. Turbotax free state filing The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. Turbotax free state filing 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. Turbotax free state filing Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. Turbotax free state filing Excess withdrawn by April 15. Turbotax free state filing   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. Turbotax free state filing However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. Turbotax free state filing The distribution is not subject to the additional 10% tax on early distributions. Turbotax free state filing   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. Turbotax free state filing   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. Turbotax free state filing Excess not withdrawn by April 15. Turbotax free state filing   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. Turbotax free state filing In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Turbotax free state filing 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. Turbotax free state filing Reporting corrective distributions on Form 1099-R. Turbotax free state filing   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. Turbotax free state filing For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. Turbotax free state filing Tax on excess contributions of highly compensated employees. Turbotax free state filing   The law provides tests to detect discrimination in a plan. Turbotax free state filing 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. Turbotax free state filing Report the tax on Form 5330. Turbotax free state filing The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. Turbotax free state filing Also, the ACP test does not apply to these plans if certain additional requirements are met. Turbotax free state filing   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. Turbotax free state filing 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. Turbotax free state filing   See Regulations sections 1. Turbotax free state filing 401(k)-2 and 1. Turbotax free state filing 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Turbotax free state filing    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. Turbotax free state filing Safe harbor 401(k) plan. Turbotax free state filing 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. Turbotax free state filing For your plan to be a safe harbor plan, you must meet the following conditions. Turbotax free state filing Matching or nonelective contributions. Turbotax free state filing You must make matching or nonelective contributions according to one of the following formulas. Turbotax free state filing Matching contributions. Turbotax free state filing You must make matching contributions according to the following rules. Turbotax free state filing You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. Turbotax free state filing You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. Turbotax free state filing The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Turbotax free state filing Nonelective contributions. Turbotax free state filing 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. Turbotax free state filing These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. Turbotax free state filing Notice requirement. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing 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. Turbotax free state filing An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. Turbotax free state filing 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. Turbotax free state filing Rollover. Turbotax free state filing   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. Turbotax free state filing For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. Turbotax free state filing R. Turbotax free state filing B. Turbotax free state filing 872, available at www. Turbotax free state filing irs. Turbotax free state filing gov/irb/2010-51_IRB/ar11. Turbotax free state filing html, and Notice 2013-74. Turbotax free state filing A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. Turbotax free state filing Rollover amounts do not apply toward the annual deferral limit. Turbotax free state filing 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. Turbotax free state filing See the Form W-2 and 1099-R instructions for detailed information. Turbotax free state filing Distributions Amounts paid to plan participants from a qualified plan are called distributions. Turbotax free state filing Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. Turbotax free state filing Also, certain loans may be treated as distributions. Turbotax free state filing See Loans Treated as Distributions in Publication 575. Turbotax free state filing 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). Turbotax free state filing These distribution rules apply individually to each qualified plan. Turbotax free state filing You cannot satisfy the requirement for one plan by taking a distribution from another. Turbotax free state filing The plan must provide that these rules override any inconsistent distribution options previously offered. Turbotax free state filing Minimum distribution. Turbotax free state filing   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. Turbotax free state filing This minimum is figured by dividing the account balance by the applicable life expectancy. Turbotax free state filing The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. Turbotax free state filing For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. Turbotax free state filing Required beginning date. Turbotax free state filing   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. Turbotax free state filing   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. Turbotax free state filing Calendar year in which he or she reaches age 70½. Turbotax free state filing Calendar year in which he or she retires from employment with the employer maintaining the plan. Turbotax free state filing 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. Turbotax free state filing   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. Turbotax free state filing For more information, see Tax on Excess Accumulation in Publication 575. Turbotax free state filing Distributions after the starting year. Turbotax free state filing   The distribution required to be made by April 1 is treated as a distribution for the starting year. Turbotax free state filing (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. Turbotax free state filing ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. Turbotax free state filing 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). Turbotax free state filing Distributions after participant's death. Turbotax free state filing   See Publication 575 for the special rules covering distributions made after the death of a participant. Turbotax free state filing Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. Turbotax free state filing The employee retires, dies, becomes disabled, or otherwise severs employment. Turbotax free state filing The plan ends and no other defined contribution plan is established or continued. Turbotax free state filing 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. Turbotax free state filing For the rules on hardship distributions, including the limits on them, see Regulations section 1. Turbotax free state filing 401(k)-1(d). Turbotax free state filing The employee becomes eligible for a qualified reservist distribution (defined next). Turbotax free state filing Certain distributions listed above may be subject to the tax on early distributions discussed later. Turbotax free state filing Qualified reservist distributions. Turbotax free state filing   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. Turbotax free state filing All or part of a qualified reservist distribution can be recontributed to an IRA. Turbotax free state filing The additional 10% tax on early distributions does not apply to a qualified reservist distribution. Turbotax free state filing 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. Turbotax free state filing Since most recipients have no cost basis, a distribution is generally fully taxable. Turbotax free state filing An exception is a distribution that is properly rolled over as discussed under Rollover, next. Turbotax free state filing The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. Turbotax free state filing 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. Turbotax free state filing Note. Turbotax free state filing 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. Turbotax free state filing Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. Turbotax free state filing See Qualified distributions under Qualified Roth Contribution Program, earlier. Turbotax free state filing Rollover. Turbotax free state filing   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. Turbotax free state filing However, it may be subject to withholding as discussed under Withholding requirement, later. Turbotax free state filing 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. Turbotax free state filing Eligible rollover distribution. Turbotax free state filing   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. Turbotax free state filing A required minimum distribution. Turbotax free state filing See Required Distributions , earlier. Turbotax free state filing Any of a series of substantially equal payments made at least once a year over any of the following periods. Turbotax free state filing The employee's life or life expectancy. Turbotax free state filing The joint lives or life expectancies of the employee and beneficiary. Turbotax free state filing A period of 10 years or longer. Turbotax free state filing A hardship distribution. Turbotax free state filing The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. Turbotax free state filing See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. Turbotax free state filing Loans treated as distributions. Turbotax free state filing Dividends on employer securities. Turbotax free state filing The cost of any life insurance coverage provided under a qualified retirement plan. Turbotax free state filing Similar items designated by the IRS in published guidance. Turbotax free state filing See, for example, the Instructions for Forms 1099-R and 5498. Turbotax free state filing Rollover of nontaxable amounts. Turbotax free state filing   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. Turbotax free state filing 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. Turbotax free state filing If the rollover is to an IRA, the transfer can be made by any rollover method. Turbotax free state filing Note. Turbotax free state filing A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. Turbotax free state filing 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). Turbotax free state filing More information. Turbotax free state filing   For more information about rollovers, see Rollovers in Pubs. Turbotax free state filing 575 and 590. Turbotax free state filing Withholding requirement. Turbotax free state filing   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. Turbotax free state filing Exceptions. Turbotax free state filing   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. Turbotax free state filing   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. Turbotax free state filing Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). Turbotax free state filing However, the participant can choose not to have tax withheld from these distributions. Turbotax free state filing If the participant does not make this choice, the following withholding rules apply. Turbotax free state filing For periodic distributions, withholding is based on their treatment as wages. Turbotax free state filing For nonperiodic distributions, 10% of the taxable part is withheld. Turbotax free state filing Estimated tax payments. Turbotax free state filing   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. Turbotax free state filing For more information, see Withholding Tax and Estimated Tax in Publication 575. Turbotax free state filing Section 402(f) Notice. Turbotax free state filing   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. Turbotax free state filing That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. Turbotax free state filing That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. Turbotax free state filing 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. Turbotax free state filing Certain other rules that may be applicable. Turbotax free state filing   Notice 2009-68, 2009-39 I. Turbotax free state filing R. Turbotax free state filing B. Turbotax free state filing 423, available at www. Turbotax free state filing irs. Turbotax free state filing gov/irb/2009-39_IRB/ar14. Turbotax free state filing html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. Turbotax free state filing If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. Turbotax free state filing Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. Turbotax free state filing Timing of notice. Turbotax free state filing   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. Turbotax free state filing Method of notice. Turbotax free state filing   The written notice must be provided individually to each distributee of an eligible rollover distribution. Turbotax free state filing Posting of the notice is not sufficient. Turbotax free state filing However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. Turbotax free state filing See Regulations section 1. Turbotax free state filing 401(a)-21. Turbotax free state filing Tax on failure to give notice. Turbotax free state filing   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. Turbotax free state filing The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. Turbotax free state filing 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. Turbotax free state filing This tax applies to the amount received that the employee must include in income. Turbotax free state filing Exceptions. Turbotax free state filing   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. Turbotax free state filing Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. Turbotax free state filing Made due to the employee having a qualifying disability. Turbotax free state filing 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. Turbotax free state filing (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. Turbotax free state filing ) Made to an employee after separation from service if the separation occurred during o
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