2011.13 Retirement Savings and Deferred Compensation

2011.13 Retirement Savings and Deferred Compensation -...

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Retirement Savings and Retirement Savings and Deferred Compensation Deferred Compensation
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Qualified Plans Qualified Plans Pension, profit-sharing, stock bonus and ESOPs, cash balance plans Pensions are either defined benefit or defined contribution plans Must not discriminate in favor of high-paid employees, must cover 21 year-olds and up after 1 year of service. Vesting: cliff after 5 years, graded is 20% after 3 years and fully vested in 7 years.
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Some Important Definitions Some Important Definitions Defined Contribution Plan Limited to lower of employee’s compensation or $46,000 2008 indexed Includes profit sharing plan, money purchase plan, stock bonus plan, but max limits differ Limited to lower of 25% employee’s compensation or $46,000 indexed Defined Benefit Plan Benefit payable is lesser of $195,000 or 100% of avg. of highest paid 3 years, up to $245,000; $10,000 de minimis floor: 2009 Special rules where employee has worked <10 years Must retire at 65 or later (staggered retirement ages)
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Contributions to Retirement Contributions to Retirement Accounts Accounts IRAs: $5,000 in 2008 with catch-up provision for t/ps age 50 and over - $1,000 in 2006+ (still in 2010) Roth IRA: limits the same but works differently: No deduction up front but all withdrawals are tax-free. Other retirement provisions you might see: SIMPLE, SEP, Keogh, 401(k), 403 (b); 2010 limits for 401(k) is $16,500; $49,000 Keogh/SEP limit 2009.
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401(k) 401(k) Participant contributes, employer matches portion up to max; 100% vested; tax deferred contributions and earnings Max tax break on $16,500 indexed (2009) Max reduced $-4-$ by tax-sheltered annuities and SEPs If excess exceeded, extra is taxable or may be distributed tax-free before 4/15 of following year. 10% excise tax for excess contributions; possible loss of qualified status Catch-up contributions of extra $5k for those over 50 403(b) similar to 401(k)
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Savings Incentive Match Plan for Savings Incentive Match Plan for Employees Employees So named, presumably, because tax legislators get punchy after working long hours during legislative session EZ 401 (k) for Smalls Less than 100 employees, receiving at least $5,000 over 3yr pd including this year may contribute up to $11,500/year, 2009; indexed w/ $2,500 catch-up provision Employee contributes % of compensation; matching of 3% or direct contribution of 2%, Employer deducts up to cost or 25% of compensation paid/accrued Subject to IRA withdrawal rules, except if withdrawn early in first 2 years of employment, subject to 25% penalty instead of 10% penalty
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2011.13 Retirement Savings and Deferred Compensation -...

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