Table of Contents
- Topics - This chapter discusses:
- Useful Items - You may want to see:
- 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
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Kinds of plans
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Qualification rules
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Setting up a qualified plan
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Minimum funding requirement
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Contributions
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Employer deduction
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Elective deferrals (401(k) plans)
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Qualified Roth contribution program
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Distributions
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Prohibited transactions
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Reporting requirements
Publications
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575 Pension and Annuity Income
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590 Individual Retirement Arrangements (IRAs)
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3066 Have you had your Check-Up this year? for Retirement Plans
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3998 Choosing A Retirement Solution for Your Small Business
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4222 401(k) Plans for Small Businesses
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4530 Designated Roth Accounts Under a 401(k) or 403(b) Plan
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4531 401(k) Plan Checklist
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4674 Automatic Enrollment 401(k) Plans for Small Businesses
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4806 Profit-Sharing Plans for Small Business
Forms (and Instructions)
www.efast.dol.gov/fip/forms_pubs.html
www.efast.dol.gov/fip/forms_pubs.html
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W-2 Wage and Tax Statement
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Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc.
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1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
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1040 U.S. Individual Income Tax Return
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Schedule C (Form 1040) Profit or Loss From Business
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Schedule F (Form 1040) Profit or Loss From Farming
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5300 Application for Determination for Employee Benefit Plan
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5310 Application for Determination for Terminating Plan
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5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts
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5330 Return of Excise Taxes Related to Employee Benefit Plans
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5500 Annual Return/Report of Employee Benefit Plan. For copies of this form for 2009 and beyond, go to:
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5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan
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5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. For copies of this form for 2009 and beyond, go to:
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8717 User Fee for Employee Plan Determination, Opinion, and Advisory Letter Request
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8880 Credit for Qualified Retirement Savings Contributions
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8881 Credit for Small Employer Pension Plan Startup Costs
These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H.R.10 plans. A sole proprietor or a partnership can set up one of these plans. A common-law employee or a partner cannot set up one of these plans. The plans described here can also be set up and maintained by employers that are corporations. All the rules discussed here apply to corporations except where specifically limited to the self-employed.
The plan must be for the exclusive benefit of employees or their beneficiaries. These qualified plans can include coverage for a self-employed individual.
As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. The contributions (and earnings and gains on them) are generally tax free until distributed by the plan.
There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. 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.
A defined contribution plan provides an individual account for each participant in the plan. It provides benefits to a participant largely based on the amount contributed to that participant's account. Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan.
A defined benefit plan is any plan that is not a defined contribution plan. Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Actuarial assumptions and computations are required to figure these contributions. Generally, you will need continuing professional help to have a defined benefit plan.
To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. 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. The following is a brief overview of important qualification rules that generally have not yet been discussed. It is not intended to be all-inclusive. See Setting Up a Qualified Plan, later.
Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. 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.
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50 employees, or
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The greater of:
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40% of all employees, or
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Two employees.
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Has reached age 21.
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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).
A plan cannot exclude an employee because he or she has reached a specified age.
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Nondiscrimination in coverage, contributions, and benefits.
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Minimum age and service requirements.
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Vesting.
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Limits on contributions and benefits.
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Top-heavy plan requirements.
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The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan.
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The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs.
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The plan year in which the participant separates from service.
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Satisfies the service requirement for the early retirement benefit.
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Separates from service with a nonforfeitable right to an accrued benefit. The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met.
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A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date.
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A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse.
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The participant does not choose benefits in the form of a life annuity.
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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.
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The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits.
There are two basic steps in setting up a qualified plan. First you adopt a written plan. Then you invest the plan assets.
You, the employer, are responsible for setting up and maintaining the plan.
If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. If you have employees, see Participation, under Qualification Rules, earlier.
You must adopt a written plan. The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. Or it can be an individually designed plan.
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Banks (including some savings and loan associations and federally insured credit unions).
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Trade or professional organizations.
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Insurance companies.
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Mutual funds.
Internal Revenue Bulletins are available on the IRS website at IRS.gov They are also available at most IRS offices and at certain libraries.
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The end of the 5th plan year the plan is in effect.
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The end of any remedial amendment period for the plan that begins within the first 5 plan years.
In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets.
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You can establish a trust or custodial account to invest the funds.
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You, the trust, or the custodial account can buy an annuity contract from an insurance company. Life insurance can be included only if it is incidental to the retirement benefits.
You set up a trust by a legal instrument (written document). You may need professional help to do this.
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.
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. If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable.
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. 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. The amount is based on what should be contributed under the plan formula using actuarial assumptions and formulas. For information on this funding requirement, see section 412 and its regulations.
A qualified plan is generally funded by your contributions. However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. See Employee Contributions and Elective Deferrals later.
There are certain limits on the contributions and other annual additions you can make each year for plan participants. There are also limits on the amount you can deduct. See Deduction Limits, later.
Your plan must provide that contributions or benefits cannot exceed certain limits. The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan.
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100% of the participant's average compensation for his or her highest 3 consecutive calendar years.
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$195,000 ($200,000 for 2012).
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100% of the participant's compensation.
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$49,000 ($50,000 for 2012).
Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. Also, these contributions must satisfy the nondiscrimination test of section 401(m). See Regulations sections 1.401(k)-2 and 1.401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m).
You generally apply your plan contributions to the year in which you make them. But you can apply them to the previous year if all the following requirements are met.
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You make them by the due date of your tax return for the previous year (plus extensions).
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The plan was established by the end of the previous year.
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The plan treats the contributions as though it had received them on the last day of the previous year.
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You do either of the following.
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You specify in writing to the plan administrator or trustee that the contributions apply to the previous year.
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You deduct the contributions on your tax return for the previous year. A partnership shows contributions for partners on Schedule K (Form 1065), Partners' Distributive Share Items.
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You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. The contributions (and earnings and gains on them) are generally tax free until distributed by the plan.
The deduction limit for your contributions to a qualified plan depends on the kind of plan you have.
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Elective deferrals (discussed later) are not subject to the limit.
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Compensation includes elective deferrals.
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The maximum compensation that can be taken into account for each employee in 2011 is $245,000 ($250,000 for 2012).
If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. Compensation is your net earnings from self-employment, defined in chapter 1. This definition takes into account both the following items.
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The deduction for the deductible part of your self-employment tax.
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The deduction for contributions on your behalf to the plan.
The deduction for your own contributions and your net earnings depend on each other. For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5.
Deduct the contributions you make for your common-law employees on your tax return. For example, sole proprietors deduct them on Schedule C (Form 1040), Profit or Loss From Business, or Schedule F (Form 1040), Profit or Loss From Farming; partnerships deduct them on Form 1065, U.S. Return of Partnership Income; and corporations deduct them on Form 1120, U.S. Corporation Income Tax Return, or Form 1120S, U.S. Income Tax Return for an S Corporation.
Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040, U.S. Individual Income Tax Return. (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc., you get from the partnership.)
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. Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. See Deduction Limit for Self-Employed Individuals, earlier. The amount you carry over and deduct may be subject to the excise tax discussed next.
Table 4-1 on the previous page illustrates the carryover of excess contributions to a profit-sharing plan.
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 |
---|---|---|---|---|---|---|---|
2008 | $1,000 | $100 | $250 | $100 | $ 0 | $100 | $ 0 |
2009 | 400 | 165 | 100 | 165 | 0 | 100 | 65 |
2010 | 500 | 100 | 125 | 100 | 25 | 125 | 40 |
2011 | 600 | 100 | 150 | 100 | 40 | 140 | 0 |
1There were no carryovers from years before 2008. |
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. In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs.
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. A plan with this type of arrangement is popularly known as a “401(k) plan.” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business.) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money.
In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans.
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A profit-sharing plan.
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A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date.
There is a limit on the amount an employee can defer each year under these plans. This limit applies without regard to community property laws. Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. For 2011, the basic limit on elective deferrals is $16,500. This amount increases to $17,000 in 2012. This limit applies to all salary reduction contributions and elective deferrals. If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income.
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The catch-up contribution limit.
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The excess of the participant's compensation over the elective deferrals that are not catch-up contributions.
Your 401(k) plan can have an automatic enrollment feature. 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. These contributions are elective deferrals. An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses.
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The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA.
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The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon.
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It must be applied uniformly.
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It must not exceed 10%.
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It must be at least 3% in the first plan year it applies to an employee and through the end of the following year.
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It must increase to at least 4% in the following plan year.
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It must increase to at least 5% in the following plan year.
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It must increase to at least 6% in subsequent plan years.
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Matching contributions.You must make matching contributions on behalf of each non-highly compensated employee in the following amounts.
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An amount equal to 100% of elective deferrals, up to 1% of compensation.
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An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation.
Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees.
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Nonelective contributions.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.
If the total of an employee's deferrals is more than the limit for 2011, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. He or she must notify the plan by April 15, 2012 (or an earlier date specified in the plan), of the amount to be paid from each plan. The plan must then pay the employee that amount, plus earnings on the amount through the end of 2011, by April 15, 2012.
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. For your plan to be a safe harbor plan, you must meet the following conditions.
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Matching or nonelective contributions. You must make matching or nonelective contributions according to one of the following formulas.
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Matching contributions. You must make matching contributions according to the following rules.
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You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation.
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You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation.
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The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees.
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Nonelective contributions. 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.
These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions.
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Notice requirement. 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.
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.
Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. 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.
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 ($16,500 for 2011 and $17,000 for 2012, $22,000 if age 50 or over for 2011, $22,500 for 2012) less the total amount of the employee's elective deferrals not designated as Roth contributions.
Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including:
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The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $16,500 for 2011 ($17,000 for 2012), with an additional $5,500 if age 50 or over (same for 2012),
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Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $49,000 for 2011 ($50,000 for 2012) and subject to cost-of-living adjustment thereafter,
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Nondiscrimination testing,
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Required distributions, and
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Elective deferrals not taken into account for purposes of deduction limits.
A qualified distribution is a distribution that is made after the employee's nonexclusion period and:
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On or after the employee attains age
59½, -
On account of the employee's being disabled, or
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On or after the employee's death.
An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years.
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The first tax year in which the employee made a designated Roth contribution to the plan, or
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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.
Amounts paid to plan participants from a qualified plan are called distributions. Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. Also, certain loans may be treated as distributions. See Loans Treated as Distributions in Publication 575.
A qualified plan must provide that each participant will either:
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Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or
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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).
These distribution rules apply individually to each qualified plan. You cannot satisfy the requirement for one plan by taking a distribution from another. The plan must provide that these rules override any inconsistent distribution options previously offered.
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Calendar year in which he or she reaches age 70½.
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Calendar year in which he or she retires from employment with the employer maintaining the plan.
Generally, distributions cannot be made until one of the following occurs.
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The employee retires, dies, becomes disabled, or otherwise severs employment.
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The plan ends and no other defined contribution plan is established or continued.
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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. For the rules on hardship distributions, including the limits on them, see Regulations section 1.401(k)-1(d).
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The employee becomes eligible for a qualified reservist distribution (defined below).
Certain distributions listed above may be subject to the tax on early distributions discussed later.
Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. Since most recipients have no cost basis, a distribution is generally fully taxable. An exception is a distribution that is properly rolled over as discussed under Rollover, below.
The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. 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.
Note.
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. Also, a distribution from a designated Roth account is tax-free if certain conditions are met. See Qualified distributions under Qualified Roth Contribution Program, earlier.
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A required minimum distribution. See Required Distributions, earlier.
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Any of a series of substantially equal payments made at least once a year over any of the following periods.
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The employee's life or life expectancy.
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The joint lives or life expectancies of the employee and beneficiary.
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A period of 10 years or longer.
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A hardship distribution.
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The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. See Employee Contributions, earlier, and Rollover of nontaxable amounts, below.
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Loans treated as distributions.
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Dividends on employer securities.
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The cost of any life insurance coverage provided under a qualified retirement plan.
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Similar items designated by the IRS in published guidance. See, for example, the Instructions for Forms 1099-R and 5498.
Note.
A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. 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).
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For periodic distributions, withholding is based on their treatment as wages.
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For nonperiodic distributions, 10% of the taxable part is withheld.
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That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer.
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That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan.
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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.
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Certain other rules that may be applicable.
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. This tax applies to the amount received that the employee must include in income.
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Made to a beneficiary (or to the estate of the employee) on or after the death of the employee.
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Made due to the employee having a qualifying disability.
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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. (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.)
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Made to an employee after separation from service if the separation occurred during or after the calendar year in which the employee reached age 55.
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Made to an alternate payee under a QDRO.
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Made to an employee for medical care up to the amount allowable as a medical expense deduction (determined without regard to whether the employee itemizes deductions).
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Timely made to reduce excess contributions under a 401(k) plan.
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Timely made to reduce excess employee or matching employer contributions (excess aggregate contributions).
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Timely made to reduce excess elective deferrals.
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Made because of an IRS levy on the plan.
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Made as a qualified reservist distribution.
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Made as a permissible withdrawal from an EACA.
If you are or have been a 5% owner of the business maintaining the plan, amounts you receive at any age that are more than the benefits provided for you under the plan formula are subject to an additional tax. This tax also applies to amounts received by your successor. The tax is 10% of the excess benefit includible in income.
To determine whether or not you are a 5% owner, see section 416.
A 20% or 50% excise tax is generally imposed on the cash and fair market value of other property an employer receives directly or indirectly from a qualified plan. If you owe this tax, report it on Schedule I of Form 5330. See the form instructions for more information.
An employer or the plan will have to pay an excise tax if both the following occur.
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A defined benefit plan or money purchase pension plan is amended to provide for a significant reduction in the rate of future benefit accrual.
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The plan administrator fails to notify the affected individuals and the employee organizations representing them of the reduction in writing.
A plan amendment that eliminates or reduces any early retirement benefit or retirement-type subsidy reduces the rate of future benefit accrual.
The notice must be written in a manner calculated to be understood by the average plan participant and must provide enough information to allow each individual to understand the effect of the plan amendment. It must be provided within a reasonable time before the amendment takes effect.
The tax is $100 per participant or alternate payee for each day the notice is late, the total tax cannot be more than $500,000 during the tax year. It is imposed on the employer, or, in the case of a multi-employer plan, on the plan.
Prohibited transactions are transactions between the plan and a disqualified person that are prohibited by law. (However, see Exemption, below.) If you are a disqualified person who takes part in a prohibited transaction, you must pay a tax (discussed later).
Prohibited transactions generally include the following transactions.
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A transfer of plan income or assets to, or use of them by or for the benefit of, a disqualified person.
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Any act of a fiduciary by which he or she deals with plan income or assets in his or her own interest.
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The receipt of consideration by a fiduciary for his or her own account from any party dealing with the plan in a transaction that involves plan income or assets.
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Any of the following acts between the plan and a disqualified person.
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Selling, exchanging, or leasing property.
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Lending money or extending credit.
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Furnishing goods, services, or facilities.
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A fiduciary of the plan.
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A person providing services to the plan.
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An employer, any of whose employees are covered by the plan.
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An employee organization, any of whose members are covered by the plan.
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Any direct or indirect owner of 50% or more of any of the following.
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The combined voting power of all classes of stock entitled to vote, or the total value of shares of all classes of stock of a corporation that is an employer or employee organization described in (3) or (4).
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The capital interest or profits interest of a partnership that is an employer or employee organization described in (3) or (4).
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The beneficial interest of a trust or unincorporated enterprise that is an employer or an employee organization described in (3) or (4).
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A member of the family of any individual described in (1), (2), (3), or (5). (A member of a family is the spouse, ancestor, lineal descendant, or any spouse of a lineal descendant.)
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A corporation, partnership, trust, or estate of which (or in which) any direct or indirect owner described in (1) through (5) holds 50% or more of any of the following.
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The combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation.
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The capital interest or profits interest of a partnership.
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The beneficial interest of a trust or estate.
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An officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10% or more shareholder, or highly compensated employee (earning 10% or more of the yearly wages of an employer) of a person described in (3), (4), (5), or (7).
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A 10% or more (in capital or profits) partner or joint venturer of a person described in (3), (4), (5), or (7).
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Any disqualified person, as described in (1) through (9) above, who is a disqualified person with respect to any plan to which a section 501(c)(22) trust is permitted to make payments under section 4223 of ERISA.
The initial tax on a prohibited transaction is 15% of the amount involved for each year (or part of a year) in the taxable period. If the transaction is not corrected within the taxable period, an additional tax of 100% of the amount involved is imposed. For information on correcting the transaction, see Correcting a prohibited transaction, later.
Both taxes are payable by any disqualified person who participated in the transaction (other than a fiduciary acting only as such). If more than one person takes part in the transaction, each person can be jointly and severally liable for the entire tax.
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The money and fair market value of any property given.
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The money and fair market value of any property received.
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The day the IRS mails a notice of deficiency for the tax.
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The day the IRS assesses the tax.
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The day the correction of the transaction is completed.
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The IRS grants reasonable time needed to correct the transaction.
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You petition the Tax Court.
You may have to file an annual return/report form by the last day of the 7th month after the plan year ends. See the following list of forms to choose the right form for your plan.
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The plan is a small plan (generally fewer than 100 participants at the beginning of the plan year).
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The plan meets the conditions for being exempt from the requirements that the plan's books and records be audited by an independent qualified public accountant.
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The plan has 100% of its assets invested in certain secure investments with a readily determinable fair value.
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The plan holds no employer securities.
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The plan is not a multiemployer plan.
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The plan covers only you (or you and your spouse) and you (or you and your spouse) own the entire business (whether incorporated or unincorporated).
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The plan covers only one or more partners (or partner(s) and spouse(s)) in a business partnership.
Example.
You are a sole proprietor and your plan meets all the conditions for filing Form 5500-EZ. The total plan assets are more than $250,000. You should file Form 5500-EZ or Form 5500-SF, if eligible.
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