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2007 Tax

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2007 Tax

2007 tax Publication 15-B - Introductory Material Table of Contents Future Developments What's New Reminders Introduction Future Developments For the latest information about developments related to Publication 15-B, such as legislation enacted after it was published, go to www. 2007 tax irs. 2007 tax gov/pub15b. 2007 tax What's New Cents-per-mile rule. 2007 tax  The business mileage rate for 2014 is 56 cents per mile. 2007 tax You may use this rate to reimburse an employee for business use of a personal vehicle, and under certain conditions, you may use the rate under the cents-per-mile rule to value the personal use of a vehicle you provide to an employee. 2007 tax See Cents-Per-Mile Rule in section 3. 2007 tax Qualified parking exclusion and commuter transportation benefit. 2007 tax . 2007 tax  For 2014, the monthly exclusion for qualified parking is $250 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $130. 2007 tax See Qualified Transportation Benefits in section 2. 2007 tax Same-sex Marriage. 2007 tax  For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. 2007 tax For more information, see Revenue Ruling 2013-17, 2013-38 I. 2007 tax R. 2007 tax B. 2007 tax 201, available at www. 2007 tax irs. 2007 tax gov/irb/2013-38_IRB/ar07. 2007 tax html. 2007 tax Notice 2013-61 provides special administrative procedures for employers to make claims for refund or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. 2007 tax Notice 2013-61, 2013-44 I. 2007 tax R. 2007 tax B. 2007 tax 432, is available at www. 2007 tax irs. 2007 tax gov/irb/2013-44_IRB/ar10. 2007 tax html. 2007 tax Recent changes to certain rules for cafeteria plans. 2007 tax  Notice 2013-71, 2013-47 I. 2007 tax R. 2007 tax B. 2007 tax 532, available at www. 2007 tax irs. 2007 tax gov/irb/2013-47_IRB/ar10. 2007 tax html, discusses recent changes to the “use-or-lose” rule for health flexible spending arrangements (FSAs) and clarifies the transitional rule for 2013-2014 non-calendar year salary reduction elections. 2007 tax See Notice 2013-71 for details on these changes. 2007 tax Reminders $2,500 limit on a health flexible spending arrangement (FSA). 2007 tax  For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,500. 2007 tax For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. 2007 tax For more information, see Cafeteria Plans in section 1. 2007 tax Additional Medicare Tax withholding. 2007 tax  In addition to withholding Medicare tax at 1. 2007 tax 45%, you must withhold a 0. 2007 tax 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. 2007 tax You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. 2007 tax Additional Medicare Tax is only imposed on the employee. 2007 tax There is no employer share of Additional Medicare Tax. 2007 tax All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. 2007 tax Unless otherwise noted, references to Medicare tax include Additional Medicare Tax. 2007 tax For more information on what wages are subject to Medicare tax, see Table 2-1, later, and the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15, (Circular E), Employer's Tax Guide. 2007 tax For more information on Additional Medicare Tax, visit IRS. 2007 tax gov and enter “Additional Medicare Tax” in the search box. 2007 tax Photographs of missing children. 2007 tax  The IRS is a proud partner with the National Center for Missing and Exploited Children. 2007 tax Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 2007 tax You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 2007 tax Introduction This publication supplements Publication 15 (Circular E), Employer's Tax Guide, and Publication 15-A, Employer's Supplemental Tax Guide. 2007 tax It contains information for employers on the employment tax treatment of fringe benefits. 2007 tax Comments and suggestions. 2007 tax   We welcome your comments about this publication and your suggestions for future editions. 2007 tax   You can write to us at the following address:  Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2007 tax NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 2007 tax Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2007 tax   You can also send us comments from www. 2007 tax irs. 2007 tax gov/formspubs. 2007 tax Click on More Information and then click on Comment on Tax Forms and Publications. 2007 tax   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 2007 tax Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Office of the Attorney General

Website: Office of the Attorney General

Address: Office of the Attorney General
Consumer Services Division
1400 Bremer Tower
445 Minnesota St.
St. Paul, MN 55101

Phone Number: 651-296-3353

Toll-free: 1-800-657-3787 (MN)

TTY: 651-297-7206 or 1-800-366-4812

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City Consumer Protection Offices

Minneapolis Department of Regulatory Services

Website: Minneapolis Department of Regulatory Services

Address: Minneapolis Department of Regulatory Services
Business Licenses & Consumer Services
City Hall, Room 1C
350 S. 5th St.
Minneapolis, MN 55415

Phone Number: 612-673-2080

TTY: 612-673-2157

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Commerce

Website: Department of Commerce

Address: Department of Commerce
Financial Institutions Division
85 7th Pl. E, Suite 500
St. Paul, MN 55101

Phone Number: 651-296-2488

Toll-free: 1-800-657-3602

TTY: 651-296-2860

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Commerce

Website: Department of Commerce

Address: Department of Commerce
Insurance Division
85 7th Place E
Suite 500
St. Paul, MN 55101

Phone Number: 651-296-4026

Toll-free: 1-800-657-3602 (MN)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Department of Commerce

Website: Department of Commerce

Address: Department of Commerce
Securities Unit
Consumer Protection and Education

85 7th Pl. E, Suite 500
St. Paul, MN 55101

Phone Number: 651-296-4973 (Securities) 651-296-2488 (Consumer Protection)

Toll-free: 1-800-657-3602 (MN)

TTY: 651-296-2860

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Utilities Commission

Website: Public Utilities Commission

Address: Public Utilities Commission
Consumer Affairs Office
121 7th Pl. E, Suite 350
St. Paul, MN 55101-2147

Phone Number: 651-296-0406

Toll-free: 1-800-657-3782

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The 2007 Tax

2007 tax 4. 2007 tax   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. 2007 tax Loan secured by benefits. 2007 tax Waiver of survivor benefits. 2007 tax Waiver of 30-day waiting period before annuity starting date. 2007 tax Involuntary cash-out of benefits not more than dollar limit. 2007 tax Exception for certain loans. 2007 tax Exception for QDRO. 2007 tax SIMPLE and safe harbor 401(k) plan exception. 2007 tax Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. 2007 tax Installment percentage. 2007 tax Extended period for making contributions. 2007 tax ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. 2007 tax Caution: Form 5500-EZ not required. 2007 tax Form 5500. 2007 tax Electronic filing of Forms 5500 and 5500-SF. 2007 tax Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. 2007 tax dol. 2007 tax gov/ebsa/pdf/2013-5500. 2007 tax pdf www. 2007 tax dol. 2007 tax gov/ebsa/pdf/2013-5500-SF. 2007 tax pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. 2007 tax 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2007 tax 1040 U. 2007 tax S. 2007 tax Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. 2007 tax For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. 2007 tax For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. 2007 tax R. 2007 tax 10 plans. 2007 tax A sole proprietor or a partnership can set up one of these plans. 2007 tax A common-law employee or a partner cannot set up one of these plans. 2007 tax The plans described here can also be set up and maintained by employers that are corporations. 2007 tax All the rules discussed here apply to corporations except where specifically limited to the self-employed. 2007 tax The plan must be for the exclusive benefit of employees or their beneficiaries. 2007 tax These qualified plans can include coverage for a self-employed individual. 2007 tax As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. 2007 tax The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. 2007 tax Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. 2007 tax You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. 2007 tax Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. 2007 tax It provides benefits to a participant largely based on the amount contributed to that participant's account. 2007 tax Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. 2007 tax A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. 2007 tax Profit-sharing plan. 2007 tax   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). 2007 tax A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. 2007 tax An employer may even make no contribution to the plan for a given year. 2007 tax   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. 2007 tax   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). 2007 tax Money purchase pension plan. 2007 tax   Contributions to a money purchase pension plan are fixed and are not based on your business profits. 2007 tax For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. 2007 tax This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. 2007 tax Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. 2007 tax Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. 2007 tax Actuarial assumptions and computations are required to figure these contributions. 2007 tax Generally, you will need continuing professional help to have a defined benefit plan. 2007 tax Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. 2007 tax Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. 2007 tax The following is a brief overview of important qualification rules that generally have not yet been discussed. 2007 tax It is not intended to be all-inclusive. 2007 tax See Setting Up a Qualified Plan , later. 2007 tax Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. 2007 tax A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. 2007 tax Plan assets must not be diverted. 2007 tax   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. 2007 tax As a general rule, the assets cannot be diverted to the employer. 2007 tax Minimum coverage requirement must be met. 2007 tax   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. 2007 tax 50 employees, or The greater of: 40% of all employees, or Two employees. 2007 tax If there is only one employee, the plan must benefit that employee. 2007 tax Contributions or benefits must not discriminate. 2007 tax   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. 2007 tax Contributions and benefits must not be more than certain limits. 2007 tax   Your plan must not provide for contributions or benefits that are more than certain limits. 2007 tax The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. 2007 tax These limits are discussed later in this chapter under Contributions. 2007 tax Minimum vesting standard must be met. 2007 tax   Your plan must satisfy certain requirements regarding when benefits vest. 2007 tax A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. 2007 tax A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. 2007 tax Special rules apply to forfeited benefit amounts. 2007 tax In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. 2007 tax   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. 2007 tax Forfeitures must be used instead to reduce employer contributions. 2007 tax Participation. 2007 tax   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. 2007 tax Has reached age 21. 2007 tax Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). 2007 tax A plan cannot exclude an employee because he or she has reached a specified age. 2007 tax Leased employee. 2007 tax   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. 2007 tax These rules include those in all the following areas. 2007 tax Nondiscrimination in coverage, contributions, and benefits. 2007 tax Minimum age and service requirements. 2007 tax Vesting. 2007 tax Limits on contributions and benefits. 2007 tax Top-heavy plan requirements. 2007 tax Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. 2007 tax Benefit payment must begin when required. 2007 tax   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. 2007 tax The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. 2007 tax The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. 2007 tax The plan year in which the participant separates from service. 2007 tax Early retirement. 2007 tax   Your plan can provide for payment of retirement benefits before the normal retirement age. 2007 tax If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. 2007 tax Satisfies the service requirement for the early retirement benefit. 2007 tax Separates from service with a nonforfeitable right to an accrued benefit. 2007 tax The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. 2007 tax Required minimum distributions. 2007 tax   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. 2007 tax See Required Distributions , under Distributions, later. 2007 tax Survivor benefits. 2007 tax   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. 2007 tax A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. 2007 tax A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. 2007 tax   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. 2007 tax The participant does not choose benefits in the form of a life annuity. 2007 tax The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. 2007 tax The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. 2007 tax Loan secured by benefits. 2007 tax   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. 2007 tax Waiver of survivor benefits. 2007 tax   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. 2007 tax The plan also must allow the participant to withdraw the waiver. 2007 tax The spouse's consent must be witnessed by a plan representative or notary public. 2007 tax Waiver of 30-day waiting period before annuity starting date. 2007 tax    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. 2007 tax   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. 2007 tax Involuntary cash-out of benefits not more than dollar limit. 2007 tax   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. 2007 tax   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. 2007 tax If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. 2007 tax   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. 2007 tax   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. 2007 tax A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. 2007 tax See Section 402(f) Notice under Distributions, later, for more details. 2007 tax Consolidation, merger, or transfer of assets or liabilities. 2007 tax   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. 2007 tax (if the plan had then terminated). 2007 tax Benefits must not be assigned or alienated. 2007 tax   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. 2007 tax Exception for certain loans. 2007 tax   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. 2007 tax A disqualified person is defined later in this chapter under Prohibited Transactions. 2007 tax Exception for QDRO. 2007 tax   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. 2007 tax   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. 2007 tax Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. 2007 tax No benefit reduction for social security increases. 2007 tax   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. 2007 tax This rule also applies to plans supplementing the benefits provided by other federal or state laws. 2007 tax Elective deferrals must be limited. 2007 tax   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. 2007 tax See Limit on Elective Deferrals later in this chapter. 2007 tax Top-heavy plan requirements. 2007 tax   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. 2007 tax   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. 2007 tax Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. 2007 tax   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. 2007 tax These qualification requirements for top-heavy plans are explained in section 416 and its regulations. 2007 tax SIMPLE and safe harbor 401(k) plan exception. 2007 tax   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. 2007 tax QACAs (discussed later) also are not subject to top-heavy requirements. 2007 tax Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. 2007 tax First you adopt a written plan. 2007 tax Then you invest the plan assets. 2007 tax You, the employer, are responsible for setting up and maintaining the plan. 2007 tax If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. 2007 tax If you have employees, see Participation, under Qualification Rules, earlier. 2007 tax Set-up deadline. 2007 tax   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). 2007 tax Credit for startup costs. 2007 tax   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. 2007 tax For more information, see Credit for startup costs under Reminders, earlier. 2007 tax Adopting a Written Plan You must adopt a written plan. 2007 tax The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. 2007 tax Or it can be an individually designed plan. 2007 tax Written plan requirement. 2007 tax   To qualify, the plan you set up must be in writing and must be communicated to your employees. 2007 tax The plan's provisions must be stated in the plan. 2007 tax It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. 2007 tax Master or prototype plans. 2007 tax   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. 2007 tax Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). 2007 tax Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. 2007 tax Under a prototype plan, a separate trust or custodial account is established for each employer. 2007 tax Plan providers. 2007 tax   The following organizations generally can provide IRS-approved master or prototype plans. 2007 tax Banks (including some savings and loan associations and federally insured credit unions). 2007 tax Trade or professional organizations. 2007 tax Insurance companies. 2007 tax Mutual funds. 2007 tax Individually designed plan. 2007 tax   If you prefer, you can set up an individually designed plan to meet specific needs. 2007 tax Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. 2007 tax You may need professional help for this. 2007 tax See Rev. 2007 tax Proc. 2007 tax 2014-6, 2014-1 I. 2007 tax R. 2007 tax B. 2007 tax 198, available at www. 2007 tax irs. 2007 tax gov/irb/2014-1_IRB/ar10. 2007 tax html, as annually updated, that may help you decide whether to apply for approval. 2007 tax Internal Revenue Bulletins are available on the IRS website at IRS. 2007 tax gov They are also available at most IRS offices and at certain libraries. 2007 tax User fee. 2007 tax   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. 2007 tax At least one of them must be a non-highly compensated employee participating in the plan. 2007 tax The fee does not apply to requests made by the later of the following dates. 2007 tax The end of the 5th plan year the plan is in effect. 2007 tax The end of any remedial amendment period for the plan that begins within the first 5 plan years. 2007 tax The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. 2007 tax   For more information about whether the user fee applies, see Rev. 2007 tax Proc. 2007 tax 2014-8, 2014-1 I. 2007 tax R. 2007 tax B. 2007 tax 242, available at www. 2007 tax irs. 2007 tax gov/irb/2014-1_IRB/ar12. 2007 tax html, as may be annually updated; Notice 2003-49, 2003-32 I. 2007 tax R. 2007 tax B. 2007 tax 294, available at www. 2007 tax irs. 2007 tax gov/irb/2003-32_IRB/ar13. 2007 tax html; and Notice 2011-86, 2011-45 I. 2007 tax R. 2007 tax B. 2007 tax 698, available at www. 2007 tax irs. 2007 tax gov/irb/2011-45_IRB/ar11. 2007 tax html. 2007 tax Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. 2007 tax You can establish a trust or custodial account to invest the funds. 2007 tax You, the trust, or the custodial account can buy an annuity contract from an insurance company. 2007 tax Life insurance can be included only if it is incidental to the retirement benefits. 2007 tax You set up a trust by a legal instrument (written document). 2007 tax You may need professional help to do this. 2007 tax You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. 2007 tax You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. 2007 tax If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. 2007 tax Other plan requirements. 2007 tax   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. 2007 tax Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. 2007 tax Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. 2007 tax For information on this funding requirement, see section 412 and its regulations. 2007 tax Quarterly installments of required contributions. 2007 tax   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. 2007 tax If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. 2007 tax Due dates. 2007 tax   The due dates for the installments are 15 days after the end of each quarter. 2007 tax For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). 2007 tax Installment percentage. 2007 tax   Each quarterly installment must be 25% of the required annual payment. 2007 tax Extended period for making contributions. 2007 tax   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. 2007 tax Contributions A qualified plan is generally funded by your contributions. 2007 tax However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. 2007 tax See Employee Contributions and Elective Deferrals later. 2007 tax Contributions deadline. 2007 tax   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. 2007 tax Self-employed individual. 2007 tax   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. 2007 tax Your net earnings must be from your personal services, not from your investments. 2007 tax If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. 2007 tax Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. 2007 tax There are also limits on the amount you can deduct. 2007 tax See Deduction Limits , later. 2007 tax Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. 2007 tax The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. 2007 tax Defined benefit plan. 2007 tax   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. 2007 tax 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. 2007 tax $205,000 ($210,000 for 2014). 2007 tax Defined contribution plan. 2007 tax   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. 2007 tax 100% of the participant's compensation. 2007 tax $51,000 ($52,000 for 2014). 2007 tax   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. 2007 tax Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. 2007 tax Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. 2007 tax Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. 2007 tax See Regulations sections 1. 2007 tax 401(k)-2 and 1. 2007 tax 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). 2007 tax When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. 2007 tax But you can apply them to the previous year if all the following requirements are met. 2007 tax You make them by the due date of your tax return for the previous year (plus extensions). 2007 tax The plan was established by the end of the previous year. 2007 tax The plan treats the contributions as though it had received them on the last day of the previous year. 2007 tax You do either of the following. 2007 tax You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. 2007 tax You deduct the contributions on your tax return for the previous year. 2007 tax A partnership shows contributions for partners on Form 1065. 2007 tax Employer's promissory note. 2007 tax   Your promissory note made out to the plan is not a payment that qualifies for the deduction. 2007 tax Also, issuing this note is a prohibited transaction subject to tax. 2007 tax See Prohibited Transactions , later. 2007 tax Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. 2007 tax The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. 2007 tax Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. 2007 tax Defined contribution plans. 2007 tax   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. 2007 tax If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. 2007 tax See Deduction Limit for Self-Employed Individuals , later. 2007 tax   When figuring the deduction limit, the following rules apply. 2007 tax Elective deferrals (discussed later) are not subject to the limit. 2007 tax Compensation includes elective deferrals. 2007 tax The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). 2007 tax Defined benefit plans. 2007 tax   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. 2007 tax Consequently, an actuary must figure your deduction limit. 2007 tax    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. 2007 tax Table 4–1. 2007 tax Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. 2007 tax Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. 2007 tax Compensation is your net earnings from self-employment, defined in chapter 1. 2007 tax This definition takes into account both the following items. 2007 tax The deduction for the deductible part of your self-employment tax. 2007 tax The deduction for contributions on your behalf to the plan. 2007 tax The deduction for your own contributions and your net earnings depend on each other. 2007 tax For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. 2007 tax To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. 2007 tax Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. 2007 tax Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. 2007 tax For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. 2007 tax Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. 2007 tax (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. 2007 tax ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. 2007 tax Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. 2007 tax For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. 2007 tax However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. 2007 tax See Deduction Limit for Self-Employed Individuals, earlier. 2007 tax The amount you carry over and deduct may be subject to the excise tax discussed next. 2007 tax Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. 2007 tax Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. 2007 tax In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. 2007 tax Special rule for self-employed individuals. 2007 tax   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. 2007 tax Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. 2007 tax See Minimum Funding Requirement , earlier. 2007 tax Reporting the tax. 2007 tax   You must report the tax on your nondeductible contributions on Form 5330. 2007 tax Form 5330 includes a computation of the tax. 2007 tax See the separate instructions for completing the form. 2007 tax Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. 2007 tax A plan with this type of arrangement is popularly known as a “401(k) plan. 2007 tax ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. 2007 tax ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. 2007 tax In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. 2007 tax A profit-sharing plan. 2007 tax A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. 2007 tax Partnership. 2007 tax   A partnership can have a 401(k) plan. 2007 tax Restriction on conditions of participation. 2007 tax   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. 2007 tax Matching contributions. 2007 tax   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. 2007 tax For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. 2007 tax Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. 2007 tax Nonelective contributions. 2007 tax   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. 2007 tax These are called nonelective contributions. 2007 tax Employee compensation limit. 2007 tax   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. 2007 tax This limit is $260,000 in 2014. 2007 tax SIMPLE 401(k) plan. 2007 tax   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. 2007 tax A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. 2007 tax For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. 2007 tax Distributions. 2007 tax   Certain rules apply to distributions from 401(k) plans. 2007 tax See Distributions From 401(k) Plans , later. 2007 tax Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. 2007 tax This limit applies without regard to community property laws. 2007 tax Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. 2007 tax For 2013 and 2014, the basic limit on elective deferrals is $17,500. 2007 tax This limit applies to all salary reduction contributions and elective deferrals. 2007 tax If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. 2007 tax Catch-up contributions. 2007 tax   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. 2007 tax The catch-up contribution limit for 2013 and 2014 is $5,500. 2007 tax Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). 2007 tax However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. 2007 tax The catch-up contribution limit. 2007 tax The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. 2007 tax Treatment of contributions. 2007 tax   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. 2007 tax Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. 2007 tax Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. 2007 tax Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. 2007 tax Forfeiture. 2007 tax   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. 2007 tax Reporting on Form W-2. 2007 tax   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. 2007 tax You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. 2007 tax You must also include them in box 12. 2007 tax Mark the “Retirement plan” checkbox in box 13. 2007 tax For more information, see the Form W-2 instructions. 2007 tax Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. 2007 tax Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. 2007 tax These contributions are elective deferrals. 2007 tax An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). 2007 tax For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. 2007 tax Eligible automatic contribution arrangement. 2007 tax   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. 2007 tax This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). 2007 tax There is no required deferral percentage. 2007 tax Withdrawals. 2007 tax   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. 2007 tax The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. 2007 tax The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. 2007 tax   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. 2007 tax The additional 10% tax on early distributions will not apply to the distribution. 2007 tax Notice requirement. 2007 tax   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. 2007 tax The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. 2007 tax The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. 2007 tax The notice also must explain how contributions will be invested in the absence of an investment election by the employee. 2007 tax Qualified automatic contribution arrangement. 2007 tax    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. 2007 tax It contains an automatic enrollment feature, and mandatory employer contributions are required. 2007 tax If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). 2007 tax Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. 2007 tax Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. 2007 tax In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). 2007 tax If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. 2007 tax It must be applied uniformly. 2007 tax It must not exceed 10%. 2007 tax It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. 2007 tax It must increase to at least 4% in the following plan year. 2007 tax It must increase to at least 5% in the following plan year. 2007 tax It must increase to at least 6% in subsequent plan years. 2007 tax Matching or nonelective contributions. 2007 tax   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. 2007 tax Matching contributions. 2007 tax You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. 2007 tax An amount equal to 100% of elective deferrals, up to 1% of compensation. 2007 tax An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. 2007 tax Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. 2007 tax The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. 2007 tax Nonelective contributions. 2007 tax You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. 2007 tax Vesting requirements. 2007 tax   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. 2007 tax These contributions are subject to special withdrawal restrictions, discussed later. 2007 tax Notice requirements. 2007 tax   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. 2007 tax The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. 2007 tax The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. 2007 tax Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. 2007 tax The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. 2007 tax Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. 2007 tax He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. 2007 tax The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. 2007 tax Excess withdrawn by April 15. 2007 tax   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. 2007 tax However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. 2007 tax The distribution is not subject to the additional 10% tax on early distributions. 2007 tax   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. 2007 tax   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. 2007 tax Excess not withdrawn by April 15. 2007 tax   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. 2007 tax In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. 2007 tax Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. 2007 tax Reporting corrective distributions on Form 1099-R. 2007 tax   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. 2007 tax For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. 2007 tax Tax on excess contributions of highly compensated employees. 2007 tax   The law provides tests to detect discrimination in a plan. 2007 tax If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. 2007 tax Report the tax on Form 5330. 2007 tax The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. 2007 tax Also, the ACP test does not apply to these plans if certain additional requirements are met. 2007 tax   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. 2007 tax Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. 2007 tax   See Regulations sections 1. 2007 tax 401(k)-2 and 1. 2007 tax 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). 2007 tax    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. 2007 tax Safe harbor 401(k) plan. 2007 tax If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. 2007 tax For your plan to be a safe harbor plan, you must meet the following conditions. 2007 tax Matching or nonelective contributions. 2007 tax You must make matching or nonelective contributions according to one of the following formulas. 2007 tax Matching contributions. 2007 tax You must make matching contributions according to the following rules. 2007 tax You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. 2007 tax You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. 2007 tax The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. 2007 tax Nonelective contributions. 2007 tax You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. 2007 tax These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. 2007 tax Notice requirement. 2007 tax You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. 2007 tax The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. 2007 tax Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. 2007 tax Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. 2007 tax However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. 2007 tax Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. 2007 tax Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. 2007 tax Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. 2007 tax An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. 2007 tax The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. 2007 tax Rollover. 2007 tax   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. 2007 tax For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. 2007 tax R. 2007 tax B. 2007 tax 872, available at www. 2007 tax irs. 2007 tax gov/irb/2010-51_IRB/ar11. 2007 tax html, and Notice 2013-74. 2007 tax A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. 2007 tax Rollover amounts do not apply toward the annual deferral limit. 2007 tax Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. 2007 tax See the Form W-2 and 1099-R instructions for detailed information. 2007 tax Distributions Amounts paid to plan participants from a qualified plan are called distributions. 2007 tax Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. 2007 tax Also, certain loans may be treated as distributions. 2007 tax See Loans Treated as Distributions in Publication 575. 2007 tax Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). 2007 tax These distribution rules apply individually to each qualified plan. 2007 tax You cannot satisfy the requirement for one plan by taking a distribution from another. 2007 tax The plan must provide that these rules override any inconsistent distribution options previously offered. 2007 tax Minimum distribution. 2007 tax   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. 2007 tax This minimum is figured by dividing the account balance by the applicable life expectancy. 2007 tax The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. 2007 tax For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. 2007 tax Required beginning date. 2007 tax   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. 2007 tax   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. 2007 tax Calendar year in which he or she reaches age 70½. 2007 tax Calendar year in which he or she retires from employment with the employer maintaining the plan. 2007 tax However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. 2007 tax   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. 2007 tax For more information, see Tax on Excess Accumulation in Publication 575. 2007 tax Distributions after the starting year. 2007 tax   The distribution required to be made by April 1 is treated as a distribution for the starting year. 2007 tax (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. 2007 tax ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. 2007 tax If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). 2007 tax Distributions after participant's death. 2007 tax   See Publication 575 for the special rules covering distributions made after the death of a participant. 2007 tax Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. 2007 tax The employee retires, dies, becomes disabled, or otherwise severs employment. 2007 tax The plan ends and no other defined contribution plan is established or continued. 2007 tax In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. 2007 tax For the rules on hardship distributions, including the limits on them, see Regulations section 1. 2007 tax 401(k)-1(d). 2007 tax The employee becomes eligible for a qualified reservist distribution (defined next). 2007 tax Certain distributions listed above may be subject to the tax on early distributions discussed later. 2007 tax Qualified reservist distributions. 2007 tax   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. 2007 tax All or part of a qualified reservist distribution can be recontributed to an IRA. 2007 tax The additional 10% tax on early distributions does not apply to a qualified reservist distribution. 2007 tax Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. 2007 tax Since most recipients have no cost basis, a distribution is generally fully taxable. 2007 tax An exception is a distribution that is properly rolled over as discussed under Rollover, next. 2007 tax The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. 2007 tax See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. 2007 tax Note. 2007 tax A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. 2007 tax Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. 2007 tax See Qualified distributions under Qualified Roth Contribution Program, earlier. 2007 tax Rollover. 2007 tax   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. 2007 tax However, it may be subject to withholding as discussed under Withholding requirement, later. 2007 tax A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. 2007 tax Eligible rollover distribution. 2007 tax   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. 2007 tax A required minimum distribution. 2007 tax See Required Distributions , earlier. 2007 tax Any of a series of substantially equal payments made at least once a year over any of the following periods. 2007 tax The employee's life or life expectancy. 2007 tax The joint lives or life expectancies of the employee and beneficiary. 2007 tax A period of 10 years or longer. 2007 tax A hardship distribution. 2007 tax The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. 2007 tax See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. 2007 tax Loans treated as distributions. 2007 tax Dividends on employer securities. 2007 tax The cost of any life insurance coverage provided under a qualified retirement plan. 2007 tax Similar items designated by the IRS in published guidance. 2007 tax See, for example, the Instructions for Forms 1099-R and 5498. 2007 tax Rollover of nontaxable amounts. 2007 tax   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. 2007 tax If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. 2007 tax If the rollover is to an IRA, the transfer can be made by any rollover method. 2007 tax Note. 2007 tax A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. 2007 tax If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). 2007 tax More information. 2007 tax   For more information about rollovers, see Rollovers in Pubs. 2007 tax 575 and 590. 2007 tax Withholding requirement. 2007 tax   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. 2007 tax Exceptions. 2007 tax   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. 2007 tax   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. 2007 tax Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). 2007 tax However, the participant can choose not to have tax withheld from these distributions. 2007 tax If the participant does not make this choice, the following withholding rules apply. 2007 tax For periodic distributions, withholding is based on their treatment as wages. 2007 tax For nonperiodic distributions, 10% of the taxable part is withheld. 2007 tax Estimated tax payments. 2007 tax   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. 2007 tax For more information, see Withholding Tax and Estimated Tax in Publication 575. 2007 tax Section 402(f) Notice. 2007 tax   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. 2007 tax That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. 2007 tax That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. 2007 tax That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. 2007 tax Certain other rules that may be applicable. 2007 tax   Notice 2009-68, 2009-39 I. 2007 tax R. 2007 tax B. 2007 tax 423, available at www. 2007 tax irs. 2007 tax gov/irb/2009-39_IRB/ar14. 2007 tax html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. 2007 tax If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. 2007 tax Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. 2007 tax Timing of notice. 2007 tax   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. 2007 tax Method of notice. 2007 tax   The written notice must be provided individually to each distributee of an eligible rollover distribution. 2007 tax Posting of the notice is not sufficient. 2007 tax However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. 2007 tax See Regulations section 1. 2007 tax 401(a)-21. 2007 tax Tax on failure to give notice. 2007 tax   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. 2007 tax The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. 2007 tax Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. 2007 tax This tax applies to the amount received that the employee must include in income. 2007 tax Exceptions. 2007 tax   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. 2007 tax Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. 2007 tax Made due to the employee having a qualifying disability. 2007 tax Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. 2007 tax (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. 2007 tax ) Made to an employee after separation from service if the separation occurred during o