I have seen this topic several times in the last week or so. At first I thought it was just one of the radical ideas that was out there to scare people about “big government.” After I saw this several times I did some research and it seems to be a legitimate proposal that is being floated. The attached is a good summary.
Larry Kopsa CPA
(Investors Business Daily) -- In a guest editorial posted at Investors.com, former House Speaker Newt Gingrich and think tank director Peter Ferrara write that investors who "did the responsible thing" by saving in their IRAs or 401(k)'s may find that "Washington is developing plans for their retirement savings." They write that "BusinessWeek reports that the Treasury and Labor departments are asking for public comment on 'the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams.'" The op-ed states: "In plain English, the idea is for the government to take your retirement savings in return for a promise to pay you some monthly benefit in your retirement years." This would be done "to pay for their unprecedented trillion-dollar budget deficits, leaving nothing to back up their political promises," write Gingrich and Ferrara. Hearings on such a proposal were "held last fall by House Education and Labor Committee Chairman George Miller, D-Calif., and Rep. Jim McDermott, D-Wash., of the Ways and Means Committee focusing on 'redirecting (IRA and 401k) tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute,'" according to the op-ed, which can be read in its entirety at http://www.investors.com/NewsAndAnalysis/Article.aspx?id=521423>
Showing posts with label Retirement Plans. Show all posts
Showing posts with label Retirement Plans. Show all posts
Tuesday, March 16, 2010
Monday, August 31, 2009
QUESTION ON SIMPLE RETIREMENT PLANS
Larry, Could you give me information on SIMPLE retirement plans for my employees.
Inus
Inus, here is the information on SIMPLE plans that you requested.
“SIMPLE” retirement plans: This is the acronym for “savings incentive match plan for employees.” This type of plan is targeted at businesses with 100 or fewer employees, and is designed to offer greater income deferral opportunities than individual retirement accounts (IRAs), with fewer restrictions and administrative requirements than traditional 401 pension or profit-sharing plans.
Under a SIMPLE plan, any employee with compensation of at least $5,000 must be permitted to enter a “qualified salary reduction arrangement.” Under this arrangement, an employee can elect to have a percentage of compensation not in excess of $11,500 (in 2009) set aside in an IRA, instead of receiving it in cash. This maximum is indexed for inflation each year.
Amounts taken out of the employee's salary and contributed to a SIMPLE IRA are not taxed to the employee until withdrawn from the SIMPLE IRA. Early withdrawals may be subject to a 10% penalty (25%, if the withdrawal is made within the first two years).
Under a qualified salary reduction arrangement, the employer must make “matching” contributions to the SIMPLE IRA. That is, the employer must make contributions to an employee's SIMPLE IRA in the same amount as the employer contributed under the employee's salary reduction election, up to 3% of the employee's compensation. For example, if an employee with compensation of $50,000 elects to have 10% of his pay contributed to the plan ($5,000), the employer must contribute an additional $1,500 (3% of $50,000). For these purposes, an employee's compensation is the amount reported on his Form W-2, plus the amount of elective deferrals (e.g., the amount of the salary reduction contributed to the SIMPLE IRA). But the matching contribution for the year cannot exceed $11,500 in 2009. This amount is indexed for inflation each year.
If an employer wishes to contribute less than 3%, he can give employees proper notice and drop the contribution to as low as 1% of compensation, as long as this isn't done for more than two years out of the five-year period ending with the year of reduced contributions.
Alternatively, instead of making “matching” employee contributions, the employer can simply contribute a flat 2% of “compensation” (limited to $245,000 for 2009, and as adjusted for inflation in following years), for every employee eligible to participate in the plan, whether the employee elects to reduce his salary or not. Special notice must be given to employees if the employer wishes to take this approach.
SIMPLE plans have the advantages of simplified reporting requirements and the absence of the qualification rules prohibiting the plan from discriminating against lower-level employees. Some employers consider the matching contribution requirements a disadvantage. Additionally, to be eligible to adopt a SIMPLE plan, an employer must not contribute to, or accrue benefits under, any qualified retirement plan for services provided during the year (or in any year after the qualified salary reduction arrangement takes effect.
As I mentioned, this may by a good time to reassess the retirement planning approach for your business. Please call if you wish to discuss this topic further.
It is a pleasure serving you.
Larry Kopsa CPA
Inus
Inus, here is the information on SIMPLE plans that you requested.
“SIMPLE” retirement plans: This is the acronym for “savings incentive match plan for employees.” This type of plan is targeted at businesses with 100 or fewer employees, and is designed to offer greater income deferral opportunities than individual retirement accounts (IRAs), with fewer restrictions and administrative requirements than traditional 401 pension or profit-sharing plans.
Under a SIMPLE plan, any employee with compensation of at least $5,000 must be permitted to enter a “qualified salary reduction arrangement.” Under this arrangement, an employee can elect to have a percentage of compensation not in excess of $11,500 (in 2009) set aside in an IRA, instead of receiving it in cash. This maximum is indexed for inflation each year.
Amounts taken out of the employee's salary and contributed to a SIMPLE IRA are not taxed to the employee until withdrawn from the SIMPLE IRA. Early withdrawals may be subject to a 10% penalty (25%, if the withdrawal is made within the first two years).
Under a qualified salary reduction arrangement, the employer must make “matching” contributions to the SIMPLE IRA. That is, the employer must make contributions to an employee's SIMPLE IRA in the same amount as the employer contributed under the employee's salary reduction election, up to 3% of the employee's compensation. For example, if an employee with compensation of $50,000 elects to have 10% of his pay contributed to the plan ($5,000), the employer must contribute an additional $1,500 (3% of $50,000). For these purposes, an employee's compensation is the amount reported on his Form W-2, plus the amount of elective deferrals (e.g., the amount of the salary reduction contributed to the SIMPLE IRA). But the matching contribution for the year cannot exceed $11,500 in 2009. This amount is indexed for inflation each year.
If an employer wishes to contribute less than 3%, he can give employees proper notice and drop the contribution to as low as 1% of compensation, as long as this isn't done for more than two years out of the five-year period ending with the year of reduced contributions.
Alternatively, instead of making “matching” employee contributions, the employer can simply contribute a flat 2% of “compensation” (limited to $245,000 for 2009, and as adjusted for inflation in following years), for every employee eligible to participate in the plan, whether the employee elects to reduce his salary or not. Special notice must be given to employees if the employer wishes to take this approach.
SIMPLE plans have the advantages of simplified reporting requirements and the absence of the qualification rules prohibiting the plan from discriminating against lower-level employees. Some employers consider the matching contribution requirements a disadvantage. Additionally, to be eligible to adopt a SIMPLE plan, an employer must not contribute to, or accrue benefits under, any qualified retirement plan for services provided during the year (or in any year after the qualified salary reduction arrangement takes effect.
As I mentioned, this may by a good time to reassess the retirement planning approach for your business. Please call if you wish to discuss this topic further.
It is a pleasure serving you.
Larry Kopsa CPA
Friday, May 29, 2009
TOP TEN FACTS ABOUT TAKING EARLY DISTRIBUTIONS FROM RETIREMENT PLANS
If you are considering taking an early distribution from your retirement plan, here are some things you need to know:
1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
2. Early distributions are usually subject to an additional 10 percent tax.
3. Early distributions must also be reported to the IRS.
4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
6. If you made nondeductible contributions to an IRA and later take early distributions from that same IRA, the portion of the distribution attributable to those contributions is not taxed.
7. If you received an early distribution from a Roth IRA the distribution attributable to contributions is not taxed.
8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
9. There are several exceptions to the additional 10 percent early distribution, such as when the distributions are used for purchase of a first home, certain medical and educational expenses or if you become disabled.
10. At age 50 you can start taking distributions without the 10% penalty if you take the money over a specified time period. If you are considering this option, make sure you discuss this with your investment advisor.
1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
2. Early distributions are usually subject to an additional 10 percent tax.
3. Early distributions must also be reported to the IRS.
4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
6. If you made nondeductible contributions to an IRA and later take early distributions from that same IRA, the portion of the distribution attributable to those contributions is not taxed.
7. If you received an early distribution from a Roth IRA the distribution attributable to contributions is not taxed.
8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
9. There are several exceptions to the additional 10 percent early distribution, such as when the distributions are used for purchase of a first home, certain medical and educational expenses or if you become disabled.
10. At age 50 you can start taking distributions without the 10% penalty if you take the money over a specified time period. If you are considering this option, make sure you discuss this with your investment advisor.
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