Other Tax Advantaged Retirement Plans Flashcards
What is a simplified employee pension (SEP)?
Employer sponsored plan contributions are made to each participating employees IRA
Employer contributions only, easy to adopt
Can Intergrate with Social Security integration
What are the employer contributions with a SEP?
Limited to the lesser of 25% of compensation ($345,000 max) $69,000 (2024)
Self-employed owners only, contributions are limited under Keogh rules.
Employer contributions are flexible
No requirement to make a contribution
100% vested immediately
Because it is funded by emploer contributions FICA and FUTA do not apply
Who is a SEP appropriate for?
Employer wants an alternative to a qualified profit sharing plan that is easy and inexpensive to install
Numerous short term employees can be an advantage, but for an employer with numerous long-term part-time employees, this can be a disadvantage
What are the SEP requirements?
Loses flexibility with regard to participation requirements
Contributions for employees must be the same percentage as the owners
Recurring and substantial does not apply
Requirements include the following :
- Cover all employees at least 21 years of age and worked for the employer during three out of the preceding five calendar years part-time employment counts
- Contributions may not be made if compensation is less than $750
What is a salary reduction SEP (SARSEP)?
Can no longer be established, but are grandfathered after 1997
No more than 25 employees at any time during the year
At least 50% of all eligible employees must participate (make a salary deferral)
Lemon on the deferral is $23,000 a year (2024) additional $7500 over 50 catch-up
Newly hired employees may join
What is a Simple IRA?
- Employer, sponsored plan
- Contributions made to a participating employee IRA
- Elective pretax contributions up to $16,000 (2024), ketchup of $3500
- Salary referrals are subject to FICA and FUTA
- May not have more than 100 employees
- Employer cannot maintain any other qualified plan, 403b, or SEP
- Participants are fully vested at all times
- Restrictions are the same as a traditional IRA distributions except the 10% distribution penalty is increased to 25% during the first two years of participation
What are the employer contributions for a simple IRA?
Mandatory
Dollars for dollar matching contributions up to 3% of the employees compensation, can elect a lower percentage, not less than 1% in no more than two out of the five years ending with the current year. Match depends on the participant deferrals no deferral than no match.
Or non-elective contribution of 2% of compensation for all eligible employees, cannot be more or less than 2% not dependent on participant referrals employee receive the 2% contribution, even if not deferring.
Under a simple IRA using the maximum match formula and employee under age 50 earning $533,333 is eligible to receive an employer match of $16,000 (3 x $533,333) plus another $16,000 from his own deferral for a total of $32,000
Note: this is in contrast to the simple 401(k) that can only use $345,000 in total compensation using the cap for qualified plans
Why would you select a simple plan?
Employers looking for an easy to administer plan funded through employee salary reductions, and an employee match needs to have less than 100 employees
What are the eligibility requirements for a simple IRA?
Must cover employees who earn $5000 in any two previous years and is it reasonably expected to earn $5000 in the current year
Must notify participants they have a 60 day election period prior to the calendar year to make a salary, deferral election or modify a previous election
What is a simple 401(k)?
Traditional 401(k) that adopts simple provisions
Exempt from both ADP and ACP test and top heavy requirements
Most employers interested in a simple would choose a simple IRA instead of the simple 401(k)
ERISA plan exempt from creditors
May not choose the special one percent match election
$16,000 (2024) and $3500 catch up
What is a 403b plan?
Can only be adopted by certain tax exempt organizations, and certain public school systems
Employers can match like a 401(k) plan
Subject to FICA and FUTA.
Limit on elective deferrals is $23,000 (2024) $7500 catch up. Subject to the lesser of 100% of compensation or $69,000.
Employees with 15 years of service with the same employer can defer up to an additional $3000 if the requirements are meant. Employees who are both 50 or older and have 15 years of service qualify for both catch-up contributions
Investments are limited to annuity contracts or mutual funds and incidental life insurance protection** individual securities are not allowed**
What is a section 457 plan?
Provides rules governing all non-qualified deferred compensation plans of governmental units, governmental agencies, and certain non-church controlled tax exempt organizations (any organization that is exempt from federal, income tax, except a church, mosque, or Synagogue, is eligible)
Total contributions are $23,000. That includes employees and employer $7500 catch up.
Does have a special catch up contribution, provision:
- participants final three years before normal retirement age (typically 65) cannot be used in the final year of employment. Limit on deferrals is increased to two times the normal limit $46,000 (2024)
- Note: only the greater of the age 50 catchup or the special catchup may be used in the three years proceeding, normal retirement age, but not both
What are the RMD and rollover requirements for a 457 plan?
Subject to required minimum distributions
Governmental 457 can be rolled into an IRA, Roth IRA or a qualified plan
Non-governmental 457 can only be rolled over into another non-governmental 457
What are the conversion rules from 529 plans to Roth IRA’s?
Allowed for unused 529 balances up to a lifetime limit of $35,000. Plan must have existed for at least 15 years.
