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401(K) PLANS
Presented by:
Mary Read, CPC, QPA
National Director of Qualified Plan Marketing
For Financial Professional Use Only. Not For Use With the Public.
DISCLOSURE
2
This material is intended as a general discussion of
qualified plan concepts and strategies. It is not
intended as specific advice concerning any
individual legal, tax or accounting matter. Alliance
Benefit Group-Pentegra does not provide legal, tax
or accounting advice. Any questions regarding your
individual situation should be directed to your
personal advisor on such matters.
For Financial Professional Use Only- Not For Use With Public
TYPES OF RETIREMENT PLANS
Defined Contribution Contribution is limited Retirement benefit is unknown Benefit depends on the amount of
contributions made and any growth of plan investments
─ Profit Sharing
─ Money Purchase
─ 401(k)
─ Target Benefit
3For Financial Professional Use Only- Not For Use With Public
4For Financial Professional Use Only – Not for the Public.
401(k) Plan Contributions
25% of total participating payroll
-Matching contributions-Qualified non-elective
contributions-Profit sharing contributions
Does NOT include employee salary deferrals
Contribution Limit100% of pay, maximum
$50,000
-Matching contributions-Qualified non-elective
contributions-Profit sharing contributions-Salary Deferrals
DOES include employee salary deferrals
Allocation Limit
What is a 401(k) Plan?
Eligible employees can save for their retirement by making salary deferrals
─ pre-tax income
─ after-tax income
─ combination of both Can include an employer matching or non-elective
contribution
discretionary profit sharing contribution.
For Financial Professional Use Only – Not for the Public. 5
401(k) PROFIT SHARING PLANS
Traditional 401(k)
Safe Harbor 401(k)
Solo-k Roth 401(k)
For Financial Professional Use Only – Not for the Public. 6
7For Financial Professional Use Only – Not for the Public.
401(k) FEATURES
Pre-tax employee salary deferrals
– Catch-up contributions for those age 50 and older
Roth 401(k) Deferrals
Optional tax-deductible employer contributions
– Matching contributions
– Qualified non-elective contributions
– Profit Sharing contributions
Tax-deferred growth*
*Distributions from a 401(k) are taxed as ordinary income and, if taken prior to age 59 ½ may be subject toan additional 10% federal income tax penalty.
TRADITIONAL 401(k) PLANS
Eligibility: Age 21 and 1 year of service (1000 hours worked annually)
Employer Contributions subject to vesting schedule
Subject to Average Deferral Percentage Test
For Financial Professional Use Only – Not for the Public. 8
9For Financial Professional Use Only – Not for the Public.
401(k) SALARY DEFERRAL PLAN
Type of plan Limit 2012
401(k) $17,000 403(b) $17,000 SARSEP $17,000 457 $17,000 SIMPLE $11,500
Salary Deferral Limit
401(k) SALARY DEFERRAL PLAN
For Financial Professional Use Only – Not for the Public. 10
Catch Up Deferral
Eligible employees
- Must attain age 50 by December 31
Plan must permit
401(K) Catch up contribution$5,500
SIMPLE Catch up contribuiton$2,500
Special Rule 403(b) Participants
A special rule applies to participants in a 403(b) plan who sponsor their own Defined Contribution
plan
– Maximum allocation includes salary deferrals made in a 403(b) plan
Example:
Salary deferral in 403(b) $16,500
Profit sharing contribution $33,500
Total$50,000
For Financial Professional Use Only – Not for the Public. 11
ADP TEST
The HCEs’ average may only exceed the NHCEs’average (for both the ADP and ACP tests) by specific limits summarized as follows:
NHCE Percentage Maximum HCE Percentage
2% or less NHCE % × 22%–8% NHCE % + 2more than 8% NHCE % × 1.25
For Financial Professional Use Only – Not for the Public. 12
CASE STUDY INDUSTRIAL DESIGN, INC.
Age Compensation
Owner A 61 $250,000
Owner B 48 250,000
Employee 1 32 60,000
Employee 2 62 30,000
$590,000
For Financial Professional Use Only – Not for the Public. 13
This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ.
401(k)
Deferral Catch-up
3% Matc
h PS Total
Owner A $17,000 $5,500 $7,500$25,50
0 $55,500
Owner B $17,000 $0 $7,500$25,50
0 $50,000
EE 1 2,880 ? $1,800 $2,836 $4,636
EE 2 1,440 $0 $900 $1,418 $ 2,317
Total $38,320 $5,500$17,70
0$55,25
4 $112,453
For Financial Professional Use Only – Not for the Public. 14
This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ.
Owner Deferral 6.8%Needed Rank and file Deferral 4.8%
Safe Harbor 401(k) Plans
Avoids ACP and ADP Tests
Pre-Tax/Roth Salary Deferrals
Mandatory Employer Contribution
100% immediate vesting of mandatory employer contribution
Employer Safe Harbor Contributions also used to satisfy Top Heavy and Gateway minimums
Optional Profit Sharing Contributions which can be subject to a vesting schedule
For Financial Professional Use Only – Not for the Public.15
Safe Harbor 401(k) Plans
Employer must contribute either
– Match: 100% on deferrals up to 3% of pay and 50% on deferrals between 3 and 5% of pay;
or
– Non-Elective: 3% of pay for all eligible participants
For Financial Professional Use Only – Not for the Public. 16
SAFE HARBOR 401(k)
Deferral Catch-up
3% FS PS Total
Owner A $17,000 $5,500 $7,500$25,50
0 $55,500
Owner B $17,000 $0 $7,500$25,50
0 $50,000
EE 1 $0 $0 $1,800 $1,036 $2,836
EE 2 $0 $0 $900 $518 $1,418
Total$17,70
0$52,55
4 $109,754
For Financial Professional Use Only – Not for the Public. 17
This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ.
Employer ContributionOwners receive 22.2% and 20% of compensationContributed for employees 4.734% of compensation
18
401(k) FOR ONE
401(k) for One
For highly compensated employees only
Combine with a profit sharing contribution, or with a separate defined benefit plan
Reduced 401(k) administrative fees
For Financial Professional Use Only- Not For Use With Public 18
401(k) FOR ONE
ProfitSharingContribution(25% of Pay)
401(k) Deferral$17,000$25,000
$47,500Compensation $100,000
The above example is purely hypothetical and for illustrative purposes only. The example shown here does not represent the actual results of any particular plan and your results will likely differ.
Catch Up Deferral $5,500(over Age 50)
For Financial Professional Use Only- Not For Use With Public 19
For Financial Professional Use Only – Not for the Public. 20
RECORDKEEPING
Investment Platform
Employee Access
Individual Accounts
For Financial Professional Use Only – Not for the Public. 21
ADMINISTRATION
401(a)(4) Nondiscriminatory Allocations 401(a)(9) Compensation Limitation 402(g) Excess Deferrals 404 Maximum Deductible Contributions 410(b) Minimum Coverage Testing 414(s) Testing for non-safe harbor compensation ADP/ACP Testing 415 Annual Addition Testing 416 Top Heavy Testing Nondiscriminatory Benefits/Rights/Features Determination of Highly Compensated Employees Comprehensive compliance reporting package Analysis of testing results Corrective scenarios in the event of test failures Preparation of Government filings
- IRS Form 5500 and applicable schedules (A, C, D, E, G, H, I, R, MB, SB, SSA) - Summary Annual Report (SAR) - IRS Form 5558 (Extension for Form 5500) - IRS Form 5330 -Tax reporting, including Form 1099-R, 1096, 945 and 1099-MISC
22
ALLIANCE BENEFIT GROUP-PENTEGRA
Outstanding Personal Service Industry Experts No Commission Splits No Hidden Fees
Lori J. CarpenterAdvisor Relationship Manager(800) 255-8678Direct: 704.716.8596lcarpenter@abgcarolinas.com
Mary Read CPC, QPANational Director of Qualified Plans Marketing802-477-2018mread@abgpentegra.com
For Financial Professional Use Only – Not For Use With Public
Training, custom plan proposals, prospecting and marketing materials are free. We are only a phone call away!
CIRCULAR 230 DISCLOSURES
The above information is not intended or written to be used, and it cannot
be used, by any person for the purposes of avoiding any penalty that may
be imposed by the Internal Revenue Service.
In the event the advice is also considered to be a “marketed opinion” within
the meaning of the IRS guidance, then as required by the IRS, please be
further advised of the following:
The above advice was written to support the promotion or marketing of the
transactions or matters addressed by the written advice and, based on the
particular circumstances, you should seek advice from an independent tax
advisor.
23For Financial Professional Use Only- Not For Use With Public
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