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

Www myfreetaxes com unitedwayhoco org Publication 1212 - Introductory Material Table of Contents Future Developments Photographs of Missing Children IntroductionOrdering forms and publications. Www myfreetaxes com unitedwayhoco org Tax questions. Www myfreetaxes com unitedwayhoco org Useful Items - You may want to see: Future Developments For the latest information about developments related to Pub. Www myfreetaxes com unitedwayhoco org 1212, such as legislation enacted after it was published, go to www. Www myfreetaxes com unitedwayhoco org irs. Www myfreetaxes com unitedwayhoco org gov/pub1212. Www myfreetaxes com unitedwayhoco org Photographs of Missing Children The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Www myfreetaxes com unitedwayhoco org Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Www myfreetaxes com unitedwayhoco org You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Www myfreetaxes com unitedwayhoco org Introduction This publication has two purposes. Www myfreetaxes com unitedwayhoco org Its primary purpose is to help brokers and other middlemen identify publicly offered original issue discount (OID) debt instruments they may hold as nominees for the true owners, so they can file Forms 1099-OID or Forms 1099-INT as required. Www myfreetaxes com unitedwayhoco org The other purpose of the publication is to help owners of publicly offered OID debt instruments determine how much OID to report on their income tax returns. Www myfreetaxes com unitedwayhoco org The list of publicly offered OID debt instruments (OID list) is on the IRS website. Www myfreetaxes com unitedwayhoco org The original issue discount tables, Sections I-A through III-F, are only available on the IRS website at www. Www myfreetaxes com unitedwayhoco org irs. Www myfreetaxes com unitedwayhoco org gov/pub1212 by clicking the link under Recent Developments. Www myfreetaxes com unitedwayhoco org The tables are posted to the website in late November or early December of each year. Www myfreetaxes com unitedwayhoco org The information on these lists come from the issuers of the debt instruments and from financial publications and is updated annually. Www myfreetaxes com unitedwayhoco org (However, see Debt Instruments Not on the OID List, later. Www myfreetaxes com unitedwayhoco org ) Brokers and other middlemen can rely on this list to determine, for information reporting purposes, whether a debt instrument was issued at a discount and the OID to be reported on information returns. Www myfreetaxes com unitedwayhoco org However, because the information in the list has generally not been verified by the IRS as correct, the following tax matters are subject to change upon examination by the IRS. Www myfreetaxes com unitedwayhoco org The OID reported by owners of a debt instrument on their income tax returns. Www myfreetaxes com unitedwayhoco org The issuer's classification of an instrument as debt for federal income tax purposes. Www myfreetaxes com unitedwayhoco org Instructions for issuers of OID debt instruments. Www myfreetaxes com unitedwayhoco org   In general, issuers of publicly offered OID debt instruments must, within 30 days after the issue date, report information about the instruments to the IRS on Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. Www myfreetaxes com unitedwayhoco org See the form instructions for more information. Www myfreetaxes com unitedwayhoco org Issuers should report errors in and omissions from the list in writing at the following address:  IRS OID Publication Project SE:W:CAR:MP:T  1111 Constitution Ave. Www myfreetaxes com unitedwayhoco org NW, IR-6526 Washington, D. Www myfreetaxes com unitedwayhoco org C. Www myfreetaxes com unitedwayhoco org 20224 REMIC and CDO information reporting requirements. Www myfreetaxes com unitedwayhoco org   Brokers and other middlemen must follow special information reporting requirements for real estate mortgage investment conduits (REMIC) regular, and collateralized debt obligations (CDO) interests. Www myfreetaxes com unitedwayhoco org The rules are explained in Publication 938, Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)). Www myfreetaxes com unitedwayhoco org   Holders of interests in REMICs and CDOs should see chapter 1 of Publication 550 for information on REMICs and CDOs. Www myfreetaxes com unitedwayhoco org Comments and suggestions. Www myfreetaxes com unitedwayhoco org   We welcome your comments about this publication and your suggestions for future editions. Www myfreetaxes com unitedwayhoco org   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Www myfreetaxes com unitedwayhoco org NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Www myfreetaxes com unitedwayhoco org Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Www myfreetaxes com unitedwayhoco org   You can send your comments from www. Www myfreetaxes com unitedwayhoco org irs. Www myfreetaxes com unitedwayhoco org gov/formspubs/. Www myfreetaxes com unitedwayhoco org Click on “More Information” and then on “Comment on Tax Forms and Publications. Www myfreetaxes com unitedwayhoco org ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Www myfreetaxes com unitedwayhoco org Ordering forms and publications. Www myfreetaxes com unitedwayhoco org   Visit www. Www myfreetaxes com unitedwayhoco org irs. Www myfreetaxes com unitedwayhoco org gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Www myfreetaxes com unitedwayhoco org Internal Revenue Service 1201 N. Www myfreetaxes com unitedwayhoco org Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Www myfreetaxes com unitedwayhoco org   If you have a tax question, check the information available on IRS. Www myfreetaxes com unitedwayhoco org gov or call 1-800-829-1040. Www myfreetaxes com unitedwayhoco org We cannot answer tax questions sent to any of the preceding addresses. Www myfreetaxes com unitedwayhoco org Useful Items - You may want to see: Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 550 Investment Income and Expenses 938 Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)). Www myfreetaxes com unitedwayhoco org Form (and Instructions) 1096 Annual Summary and Transmittal of U. Www myfreetaxes com unitedwayhoco org S. Www myfreetaxes com unitedwayhoco org Information Returns 1099-B Proceeds From Broker and Barter Exchange Transactions 1099-INT Interest Income 1099-OID Original Issue Discount 8949 Sales and Other Dispositions of Capital Assets Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends Schedule D (Form 1040) Capital Gains and Losses W-8 Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY See How To Get Tax Help near the end of this publication for information about getting publications and forms. Www myfreetaxes com unitedwayhoco org Prev  Up  Next   Home   More Online Publications