Publication 560 - Retirement Plans For Small Business

•

This amount is subject to cost-of-living in-

Taxpayer Relief Act of 1997, Public Law

How much of your contribution is deducti-

creases after 2002.

105 – 34.

ble.

•

Internal Revenue Service Restructuring

How to treat certain distributions.

Excise tax for nondeductible (excess) contri-

and Reform Act of 1998, Public Law

•

butions. For years beginning after December

How to report information about the plan

105 – 206.

31, 2001, in figuring the 10% excise tax, you can

to the IRS and your employees.

•

choose not to take into account as nondeduct-

Community Renewal Tax Relief Act of

ible contributions for any year contributions to a

2000, Public Law 106 – 554.

Basic features of retirement plans. Basic

defined benefit plan that are not more than the

You generally need to make these amendments

features of SEP, SIMPLE, and qualified plans

full funding limit figured without considering the

by February 28, 2002. Plans directly affected by

are discussed below. The key rules for SEP,

current liability limit. Apply the overall limits on

the September 11, 2001, terrorist attacks on the

SIMPLE, and qualified plans are outlined in Ta-

deductible contributions first to contributions to

United States have until June 30, 2002, to make

ble 1.

defined contribution plans and then to contribu-

these amendments. In cases of substantial

tions to defined benefit plans. If you use this new

SEP plans. SEPs provide a simplified

hardship resulting from the terrorist attacks, the

exception, you cannot also use the existing ex-

method for you to make contributions to a retire-

IRS may grant additional extensions of time up

ception discussed in chapter 4 under Excise Tax

ment plan for your employees. Instead of setting

to December 31, 2002, to make the amend-

for Nondeductible (Excess) Contributions.

up a profit-sharing or money purchase plan with

ments.

a trust, you can adopt a SEP agreement and

Rollover distributions. A hardship distribu-

make contributions directly to a traditional indi-

For more information about these extensions,

tion made after December 31, 2001, will not

vidual retirement account or a traditional individ-

see Revenue Procedure 2001 – 55 in Internal

qualify as an eligible rollover distribution.

ual retirement annuity (SEP-IRA) set up for each

Revenue Bulletin 2001 – 49.

eligible employee.

Involuntary payment of benefits. If a

Photographs of missing children. The Inter-

participant’s employment is terminated, a plan

SIMPLE plans. A SIMPLE plan can be set

nal Revenue Service is a proud partner with the

may provide for immediate distribution of the

up by an employer who had 100 or fewer em-

National Center for Missing and Exploited Chil-

participant’s benefit under the plan if the present

ployees who received at least $5,000 in com-

dren. Photographs of missing children selected

value of the benefit is not greater than $5,000.

pensation from the employer for the preceding

by the Center may appear in this publication on

For distributions after December 31, 2001, ben-

calendar year and who meets certain other re-

pages that would otherwise be blank. You can

efits attributable to rollover contributions and

quirements. Under a SIMPLE plan, employees

help bring these children home by looking at the

earnings on the contributions can be ignored in

can choose to make salary reduction contribu-

photographs and calling 1 – 800 – THE – LOST

determining the value of these benefits.

tions rather than receiving these amounts as

(1 – 800 – 843 – 5678) if you recognize a child.

part of their regular pay. In addition, you will

Saver’s tax credit. Beginning in 2002, retire-

contribute matching or nonelective contribu-

ment plan participants (including self-employed

tions. The two types of SIMPLE plans are the

individuals) who make contributions to their plan

Introduction

SIMPLE IRA plan and the SIMPLE 401(k) plan.

may qualify for the saver’s tax credit. The

Qualified plans. The qualified plan rules

amount of the credit is based on the contribu-

This publication discusses retirement plans you

are more complex than the SEP plan and

tions participants make and their credit rate. The

can set up and maintain for yourself and your

SIMPLE plan rules. However, there are advan-

maximum contribution eligible for the credit is

employees. In this publication, “you” refers to

tages to qualified plans, such as increased flexi-

$2,000. The credit rate can be as low as 10% or

the employer. See chapter 1 for the definition of

bility in designing plans and increased

as high as 50%, depending on the participant’s

the term employer and the definitions of other

contribution and deduction limits in some cases.

adjusted gross income. The credit also depends

terms used in this publication. This publication

on the participant’s filing status. For more infor-

covers the following types of retirement plans.

What this publication does not cover. Al-

mation, see Publication 553, Highlights of 2001

•

SEP (simplified employee pension) plans.

though the purpose of this publication is to pro-

Tax Changes.

vide general information about retirement plans

•

SIMPLE (savings incentive match plan for

you can set up for your employees, it does not

employees) plans.

contain all the rules and exceptions that apply to

•

Important Reminders

Qualified plans (also called H.R. 10 plans

these plans. You may also need professional

or Keogh plans when covering self-em-

help and guidance.

ployed individuals).

Also, this publication does not cover all the

Plan amendments required by changes in

rules that may be of interest to employees. For

the law. If you must revise your qualified plan

SEP, SIMPLE, and qualified plans offer you

example, it does not cover the following topics.

to conform to recent legislation, you may choose

and your employees a tax-favored way to save

•

to get a determination letter from the IRS ap-

The comprehensive IRA rules an em-

for retirement. You can deduct contributions you

proving the revision. Generally, master and pro-

ployee needs to know. These rules are

make to the plan for your employees. If you are a

totype plans are amended by sponsoring

covered in Publication 590, Individual Re-

sole proprietor, you can deduct contributions

organizations. However, there are instances

tirement Arrangements (IRAs).

you make to the plan for yourself. You can also

when you may need to request a determination

•

deduct trustees’ fees if contributions to the plan

The comprehensive rules that apply to dis-

letter regarding a master or prototype plan that is

do not cover them. Earnings on the contributions

tributions from retirement plans. These

a nonstandardized plan you maintain. Your re-

are generally tax free until you or your employ-

rules are covered in Publication 575, Pen-

quest should be made on the appropriate form

ees receive distributions from the plan.

sion and Annuity Income.

(generally Form 5300 or Form 5307). The re-

Under certain plans, employees can have

quest should be filed with Form 8717 and the

you contribute limited amounts of their

appropriate user fee.

Comments and suggestions. We welcome

before-tax pay to a plan. These amounts (and

You may have to amend your plan to comply

your comments about this publication and your

earnings on them) are generally tax free until

with tax law changes made by the following

suggestions for future editions.

your employees receive distributions from the

laws.

You can e-mail us while visiting our web site

plan.

•

Uniformed Services Employment and Re-

What this publication covers. This publica-

You can write to us at the following address.

employment Rights Act of 1994, Public

tion contains the information you need to under-

Law 103 – 353.

stand the following topics.

Internal Revenue Service

•

Uruguay Round Agreements Act, Public

•

What type of plan to set up.

Technical Publications Branch

Law 103 – 465.

W:CAR:MP:FP:P

•

How to set up a plan.

•

Small Business Job Protection Act of

1111 Constitution Ave. NW

•

1996, Public Law 104 – 188.

How much you can contribute to a plan.

Washington, DC 20224

Page 3

Publication 560 - Retirement Plans For Small Business - 2001 Page 3

Related Articles

Related forms

Related Categories