401(k) for One - Pentegra Retirement Services

Report
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
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
2
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
For Financial Professional Use Only- Not For Use With Public
3
401(k) Plan Contributions
Contribution Limit
Allocation Limit
25% of total participating
payroll
100% of pay, maximum
$50,000
- Matching contributions
- Qualified non-elective
contributions
- Profit sharing contributions
- Matching contributions
- Qualified non-elective
contributions
- Profit sharing contributions
- Salary Deferrals
Does NOT include employee
salary deferrals
DOES include employee
salary deferrals
For Financial Professional Use Only – Not for the Public.
4
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
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 to
an additional 10% federal income tax penalty.
For Financial Professional Use Only – Not for the Public.
7
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
401(k) SALARY DEFERRAL PLAN
Salary Deferral Limit
Type of plan
401(k)
403(b)
SARSEP
457
SIMPLE
Limit 2012
$17,000
$17,000
$17,000
$17,000
$11,500
For Financial Professional Use Only – Not for the Public.
9
401(k) SALARY DEFERRAL PLAN
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
For Financial Professional Use Only – Not for the Public.
10
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
2% or less NHCE %
2%–8% NHCE %
more than 8% NHCE %
Maximum HCE Percentage
×2
+2
× 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
This example is purely hypothetical and for illustrative purposes only. The example shown does not represent
any particular plan and your results will differ.
For Financial Professional Use Only – Not for the Public.
13
401(k)
Deferral
3%
Catch-up Match
PS
Total
Owner A
$17,000
$5,500
$7,500
$25,500
$55,500
Owner B
$17,000
$0
$7,500
$25,500
$50,000
EE 1
2,880
?
$1,800
$2,836
$4,636
EE 2
1,440
$0
$900
$1,418
$ 2,317
$5,500 $17,700
$55,254
$112,453
Total
$38,320
Owner Deferral
Needed Rank and file Deferral
6.8%
4.8%
This example is purely hypothetical and for illustrative purposes only. The example shown does not represent
any particular plan and your results will differ.
For Financial Professional Use Only – Not for the Public.
14
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
$25,500
$55,500
Owner B
$17,000
$0
$7,500
$25,500
$50,000
EE 1
$0
$0
$1,800
$1,036
$2,836
EE 2
$0
$0
$900
$518
$1,418
$17,700
$52,554
$109,754
Total
Employer Contribution
Owners receive
Contributed for employees
22.2% and 20% of compensation
4.734% of compensation
This example is purely hypothetical and for illustrative purposes only. The example shown does not represent
any particular plan and your results will differ.
For Financial Professional Use Only – Not for the Public.
17
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
18
401(k) FOR ONE
Compensation $100,000
$47,500
Catch Up Deferral
$5,500
(over Age 50)
$25,000
401(k) Deferral
$17,000
Profit
Sharing
Contribution
(25% of Pay)
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.
For Financial Professional Use Only- Not For Use With Public
19
RECORDKEEPING
 Investment Platform
 Employee Access
 Individual Accounts
For Financial Professional Use Only – Not for the Public.
20
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
For Financial Professional Use Only – Not for the Public.
21
ALLIANCE BENEFIT GROUP-PENTEGRA
 Outstanding Personal Service
Training, custom plan proposals,
prospecting and marketing
materials are free.
We are only a phone call away!
 Industry Experts
 No Commission Splits
 No Hidden Fees
Lori J. Carpenter
Advisor Relationship Manager
(800) 255-8678
Direct: 704.716.8596
[email protected]
Mary Read CPC, QPA
National Director of Qualified
Plans Marketing
802-477-2018
[email protected]
For Financial Professional Use Only – Not For Use With Public
22
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.
For Financial Professional Use Only- Not For Use With Public
23

similar documents