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Ez worksheet 8. Ez worksheet Distributions and Rollovers Table of Contents DistributionsMinimum Required Distributions No Special 10-Year Tax Option Transfer of Interest in 403(b) ContractAfter-tax contributions. Ez worksheet Permissive service credit. Ez worksheet Tax-Free RolloversHardship exception to rollover rules. Ez worksheet Eligible retirement plans. Ez worksheet Nonqualifying distributions. Ez worksheet Second rollover. Ez worksheet Gift Tax Distributions Permissible distributions. Ez worksheet Generally, a distribution cannot be made from a 403(b) account until the employee: Reaches age 59½, Has a severance from employment, Dies, Becomes disabled, In the case of elective deferrals, encounters financial hardship, or Has a qualified reservist distribution. Ez worksheet In most cases, the payments you receive or that are made available to you under your 403(b) account are taxable in full as ordinary income. Ez worksheet In general, the same tax rules apply to distributions from 403(b) plans that apply to distributions from other retirement plans. Ez worksheet These rules are explained in Publication 575. Ez worksheet Publication 575 also discusses the additional tax on early distributions from retirement plans. Ez worksheet Retired public safety officers. Ez worksheet If you are an eligible retired public safety officer, distributions of up to $3,000, made directly from your 403(b) plan to pay accident, health, or long-term care insurance, are not included in your taxable income. Ez worksheet The premiums can be for you, your spouse, or your dependents. Ez worksheet A public safety officer is a law enforcement officer, fire fighter, chaplain, or member of a rescue squad or ambulance crew. Ez worksheet For additional information, see Publication 575. Ez worksheet Distribution for active reservist. Ez worksheet The 10% penalty for early withdrawals will not apply to a qualified reservist distribution attributable to elective deferrals from a 403(b) plan. Ez worksheet A qualified reservist distribution is a distribution that is made: To an individual who is a reservist or national guardsman and who was ordered or called to active duty for a period in excess of 179 days or for an indefinite period; and During the period beginning on the date of the order or call to duty and ending at the close of the active duty period. Ez worksheet Minimum Required Distributions You must receive all, or at least a certain minimum, of your interest accruing after 1986 in the 403(b) plan by April 1 of the calendar year following the later of the calendar year in which you become age 70½, or the calendar year in which you retire. Ez worksheet Check with your employer, plan administrator, or provider to find out whether this rule also applies to pre-1987 accruals. Ez worksheet If not, a minimum amount of these accruals must begin to be distributed by the later of the end of the calendar year in which you reach age 75 or April 1 of the calendar year following retirement. Ez worksheet For each year thereafter, the minimum distribution must be made by the last day of the year. Ez worksheet If you do not receive the required minimum distribution, you are subject to a nondeductible 50% excise tax on the difference between the required minimum distribution and the amount actually distributed. Ez worksheet No Special 10-Year Tax Option A distribution from a 403(b) plan does not qualify as a lump-sum distribution. Ez worksheet This means you cannot use the special 10-year tax option to calculate the taxable portion of a 403(b) distribution. Ez worksheet For more information, see Publication 575. Ez worksheet Transfer of Interest in 403(b) Contract Contract exchanges. Ez worksheet If you transfer all or part of your interest from a 403(b) contract to another 403(b) contract (held in the same plan), the transfer is tax free, and is referred to as a contract exchange. Ez worksheet This was previously known as a 90-24 transfer. Ez worksheet A contract exchange is similar to a 90-24 transfer with one major difference. Ez worksheet Previously, you were able to accomplish the transfer without your employer’s involvement. Ez worksheet After September 24, 2007, all such transfers are accomplished through a contract exchange requiring your employer’s involvement. Ez worksheet In addition, the plan must provide for the exchange and the transferred interest must be subject to the same or stricter distribution restrictions. Ez worksheet Finally, your accumulated benefit after the exchange must be equal to what it was before the exchange. Ez worksheet Transfers that do not satisfy this rule are plan distributions and are generally taxable as ordinary income. Ez worksheet Plan-to-plan transfers. Ez worksheet You may also transfer part or all of your interest from a 403(b) plan to another 403(b) plan if you are an employee of (or were formerly employed by) the employer of the plan to which you would like to transfer. Ez worksheet Both the initial plan and the receiving plan must provide for transfers. Ez worksheet Your accumulated benefit after the transfer must be at least equal to what it was before the transfer. Ez worksheet The new plan’s restrictions on distributions must be the same or stricter than those of the original plan. Ez worksheet Tax-free transfers for certain cash distributions. Ez worksheet A tax-free transfer may also apply to a cash distribution of your 403(b) account from an insurance company that is subject to a rehabilitation, conservatorship, insolvency, or similar state proceeding. Ez worksheet To receive tax-free treatment, you must do all of the following: Withdraw all the cash to which you are entitled in full settlement of your contract rights or, if less, the maximum permitted by the state. Ez worksheet Reinvest the cash distribution in a single policy or contract issued by another insurance company or in a single custodial account subject to the same or stricter distribution restrictions as the original contract not later than 60 days after you receive the cash distribution. Ez worksheet Assign all future distribution rights to the new contract or account for investment in that contract or account if you received an amount that is less than what you are entitled to because of state restrictions. Ez worksheet In addition to the preceding requirements, you must provide the new insurer with a written statement containing all of the following information: The gross amount of cash distributed under the old contract. Ez worksheet The amount of cash reinvested in the new contract. Ez worksheet Your investment in the old contract on the date you receive your first cash distribution. Ez worksheet Also, you must attach the following items to your timely filed income tax return in the year you receive the first distribution of cash. Ez worksheet A copy of the statement you gave the new insurer. Ez worksheet A statement that includes: The words ELECTION UNDER REV. Ez worksheet PROC. Ez worksheet 92-44, The name of the company that issued the new contract, and The new policy number. Ez worksheet Direct trustee-to-trustee transfer. Ez worksheet If you make a direct trustee-to-trustee transfer, from your governmental 403(b) account to a defined benefit governmental plan, it may not be includible in gross income. Ez worksheet The transfer amount is not includible in gross income if it is made to: Purchase permissive service credits, or Repay contributions and earnings that were previously refunded under a forfeiture of service credit under the plan, or under another plan maintained by a state or local government employer within the same state. Ez worksheet After-tax contributions. Ez worksheet For distributions beginning after December 31, 2006, after-tax contributions can be rolled over between a 403(b) plan and a defined benefit plan, IRA, or a defined contribution plan. Ez worksheet If the rollover is to or from a 403(b) plan, it must occur through a direct trustee-to-trustee transfer. Ez worksheet Permissive service credit. Ez worksheet A permissive service credit is credit for a period of service recognized by a defined benefit governmental plan only if you voluntarily contribute to the plan an amount that does not exceed the amount necessary to fund the benefit attributable to the period of service and the amount contributed is in addition to the regular employee contribution, if any, under the plan. Ez worksheet A permissive service credit may also include service credit for up to 5 years where there is no performance of service, or service credited to provide an increased benefit for service credit which a participant is receiving under the plan. Ez worksheet Check with your plan administrator as to the type and extent of service that may be purchased by this transfer. Ez worksheet Tax-Free Rollovers You can generally roll over tax free all or any part of a distribution from a 403(b) plan to a traditional IRA or a non-Roth eligible retirement plan, except for any nonqualifying distributions, described later. Ez worksheet You may also roll over any part of a distribution from a 403(b) plan by converting it through a direct rollover, described below, to a Roth IRA. Ez worksheet Conversion amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. Ez worksheet See Publication 590 for more information about conversion into a Roth IRA. Ez worksheet Note. Ez worksheet A participant is required to roll over distribution amounts received within 60 days in order for the amount to be treated as nontaxable. Ez worksheet Distribution amounts that are rolled over within the 60 days are not subject to the 10% early distribution penalty. Ez worksheet Rollovers to and from 403(b) plans. Ez worksheet You can generally roll over tax free all or any part of a distribution from an eligible retirement plan to a 403(b) plan. Ez worksheet Beginning January 1, 2008, distributions from tax-qualified retirement plans and tax-sheltered annuities can be converted by making a direct rollover into a Roth IRA subject to the restrictions that currently apply to rollovers from a traditional IRA into a Roth IRA. Ez worksheet Converted amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. Ez worksheet See Publication 590 for more information on conversion into a Roth IRA. Ez worksheet If a distribution includes both pre-tax contributions and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax amounts (contributions and earnings that would be includible in income if no rollover occurred). Ez worksheet This means that if you roll over an amount that is at least as much as the pre-tax portion of the distribution, you do not have to include any of the distribution in income. Ez worksheet For more information on rollovers and eligible retirement plans, see Publication 575. Ez worksheet If you roll over money or other property from a 403(b) plan to an eligible retirement plan, see Publication 575 for information about possible effects on later distributions from the eligible retirement plan. Ez worksheet Hardship exception to rollover rules. Ez worksheet The IRS may waive the 60-day rollover period if the failure to waive such requirement would be against equity or good conscience, including cases of casualty, disaster, or other events beyond the reasonable control of an individual. Ez worksheet To obtain a hardship exception, you must apply to the IRS for a waiver of the 60-day rollover requirement. Ez worksheet You apply for the waiver by following the general instructions used in requesting a letter ruling. Ez worksheet These instructions are stated in Revenue Procedure 2013-4, 2013-1 I. Ez worksheet R. Ez worksheet B. Ez worksheet 126 available at www. Ez worksheet irs. Ez worksheet gov/irb/2013-01_IRB/ar09. Ez worksheet html, or see the latest annual update. Ez worksheet You must also pay a user fee with the application. Ez worksheet The user fee for a rollover that is less than $50,000 is $500. Ez worksheet For rollovers that are $50,000 or more, see Revenue Procedure 2013-8, 2013-1 I. Ez worksheet R. Ez worksheet B. Ez worksheet 237 available at www. Ez worksheet irs. Ez worksheet gov/irb/2013-01_IRB/ar13. Ez worksheet html, or see the latest annual update. Ez worksheet In determining whether to grant a waiver, the IRS will consider all relevant facts and circumstances, including: Whether errors were made by the financial institution; Whether you were unable to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, or postal error; Whether you used the amount distributed (for example, in the case of payment by check, whether you cashed the check); and How much time has passed since the date of distribution. Ez worksheet For additional information on rollovers, see Publication 590. Ez worksheet Eligible retirement plans. Ez worksheet The following are considered eligible retirement plans. Ez worksheet Individual retirement arrangements. Ez worksheet Roth IRA. Ez worksheet 403(b) plans. Ez worksheet Government eligible 457 plans. Ez worksheet Qualified retirement plans. Ez worksheet If the distribution is from a designated Roth account, then the only eligible retirement plan is another designated Roth account or a Roth IRA. Ez worksheet Nonqualifying distributions. Ez worksheet You cannot roll over tax free: Minimum required distributions (generally required to begin at age 70½), Substantially equal payments over your life or life expectancy, Substantially equal payments over the joint lives or life expectancies of your beneficiary and you, Substantially equal payments for a period of 10 years or more, Hardship distributions, or Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or excess annual additions and any allocable gains. Ez worksheet Rollover of nontaxable amounts. Ez worksheet You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to another eligible retirement plan, traditional IRA, or Roth IRA. Ez worksheet The transfer must be made either through a direct rollover to an eligible plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to a traditional IRA or Roth IRA. Ez worksheet If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll over is treated as coming first from the taxable part of the distribution. Ez worksheet Direct rollovers of 403(b) plan distributions. Ez worksheet You have the option of having your 403(b) plan make the rollover directly to a traditional IRA, Roth IRA, or new plan. Ez worksheet Before you receive a distribution, your plan will give you information on this. Ez worksheet It is generally to your advantage to choose this option because your plan will not withhold tax on the distribution if you choose it. Ez worksheet Distribution received by you. Ez worksheet If you receive a distribution that qualifies to be rolled over, you can roll over all or any part of the distribution. Ez worksheet Generally, you will receive only 80% of the distribution because 20% must be withheld. Ez worksheet If you roll over only the 80% you receive, you must pay tax on the 20% you did not roll over. Ez worksheet You can replace the 20% that was withheld with other money within the 60-day period to make a 100% rollover. Ez worksheet Voluntary deductible contributions. Ez worksheet For tax years 1982 through 1986, employees could make deductible contributions to a 403(b) plan under the individual retirement arrangement (IRA) rules instead of deducting contributions to a traditional IRA. Ez worksheet If you made voluntary deductible contributions to a 403(b) plan under these traditional IRA rules, the distribution of all or part of the accumulated deductible contributions may be rolled over if it otherwise qualifies as a distribution you can roll over. Ez worksheet Accumulated deductible contributions are the deductible contributions: Plus Income allocable to the contributions, Gain allocable to the contributions, and Minus Expenses and losses allocable to the contributions, and Distributions from the contributions, income, or gain. Ez worksheet Excess employer contributions. Ez worksheet The portion of a distribution from a 403(b) plan transferred to a traditional IRA that was previously included in income as excess employer contributions (discussed earlier) is not an eligible rollover distribution. Ez worksheet Its transfer does not affect the rollover treatment of the eligible portion of the transferred amounts. Ez worksheet However, the ineligible portion is subject to the traditional IRA contribution limits and may create an excess IRA contribution subject to a 6% excise tax (see chapter 1 of Publication 590). Ez worksheet Qualified domestic relations order. Ez worksheet You may be able to roll over tax free all or any part of an eligible rollover distribution from a 403(b) plan that you receive under a qualified domestic relations order (QDRO). Ez worksheet If you receive the interest in the 403(b) plan as an employee's spouse or former spouse under a QDRO, all of the rollover rules apply to you as if you were the employee. Ez worksheet You can roll over your interest in the plan to a traditional IRA or another 403(b) plan. Ez worksheet For more information on the treatment of an interest received under a QDRO, see Publication 575. Ez worksheet Spouses of deceased employees. Ez worksheet If you are the spouse of a deceased employee, you can roll over the qualifying distribution attributable to the employee. Ez worksheet You can make the rollover to any eligible retirement plan. Ez worksheet After you roll money and other property over from a 403(b) plan to an eligible retirement plan, and you take a distribution from that plan, you will not be eligible to receive the capital gain treatment or the special averaging treatment for the distribution. Ez worksheet Second rollover. Ez worksheet If you roll over a qualifying distribution to a traditional IRA, you can, if certain conditions are satisfied, later roll the distribution into another 403(b) plan. Ez worksheet For more information, see IRA as a holding account (conduit IRA) for rollovers to other eligible plans in chapter 1 of Publication 590. Ez worksheet Nonspouse beneficiary. Ez worksheet A nonspouse beneficiary may make a direct rollover of a distribution from a 403(b) plan of a deceased participant if the rollover is a direct transfer to an inherited IRA established to receive the distribution. Ez worksheet If the rollover is a direct trustee-to-trustee transfer to an IRA established to receive the distribution: The transfer will be treated as an eligible rollover distribution. Ez worksheet The IRA will be considered an inherited account. Ez worksheet The required minimum distribution rules that apply in instances where the participant dies before the entire interest is distributed will apply to the transferred IRA. Ez worksheet For more information on IRAs, see Publication 590. Ez worksheet Frozen deposits. Ez worksheet The 60-day period usually allowed for completing a rollover is extended for any time that the amount distributed is a frozen deposit in a financial institution. Ez worksheet The 60-day period cannot end earlier than 10 days after the deposit ceases to be a frozen deposit. Ez worksheet A frozen deposit is any deposit that on any day during the 60-day period cannot be withdrawn because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because one or more banks in the state are (or are about to be) bankrupt or insolvent. Ez worksheet Gift Tax If, by choosing or not choosing an election, or option, you provide an annuity for your beneficiary at or after your death, you may have made a taxable gift equal to the value of the annuity. Ez worksheet Joint and survivor annuity. Ez worksheet If the gift is an interest in a joint and survivor annuity where only you and your spouse have the right to receive payments, the gift will generally be treated as qualifying for the unlimited marital deduction. Ez worksheet More information. Ez worksheet For information on the gift tax, see Publication 559, Survivors, Executors, and Administrators. Ez worksheet Prev Up Next Home More Online Publications
Understanding Your CP288 Notice
We accepted your election to be treated as a Qualified Subchapter S Trust (QSST).
What you need to do
- File Form 1041, U.S. Income Tax Return for Estates and Trusts, timely.
- Include Schedule K-1, Beneficiary’s Share of Income, Deductions, Credits, etc., reflecting your ownership in the S corporation.
- Keep this notice for your records.
You may want to
- Visit the following sites for more information:
- Call 1-800-829-3676 (1-800-TAX-FORM) to order forms and publications or visit our website, www.irs.gov, to download them.
Answers to Common Questions
How do I terminate the QSST election?
This election can only be terminated by permission of the Commissioner of Internal Revenue. See IR Bulletin 2012-1 for instructions
Understanding your notice
Your notice may look different from the sample because the information contained in your notice is tailored to your situation.
Notice CP288, Page 1
Page Last Reviewed or Updated: 09-Dec-2013
Printable samples of this notice (PDF)
Tax publications you may find useful
How to get help
- Call the 1-800 number listed on the top right corner of your notice.
- Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
- See if you qualify for help from a Low Income Taxpayer Clinic.
The Ez Worksheet
Ez worksheet 3. Ez worksheet Savings Incentive Match Plans for Employees (SIMPLE) Table of Contents Introduction What Is a SIMPLE Plan?Eligible Employees How Are Contributions Made? How Much Can Be Contributed on Your Behalf?Matching contributions less than 3%. Ez worksheet Traditional IRA mistakenly moved to SIMPLE IRA. Ez worksheet When Can You Withdraw or Use Assets?Are Distributions Taxable? Introduction This chapter is for employees who need information about savings incentive match plans for employees (SIMPLE plans). Ez worksheet It explains what a SIMPLE plan is, contributions to a SIMPLE plan, and distributions from a SIMPLE plan. Ez worksheet Under a SIMPLE plan, SIMPLE retirement accounts for participating employees can be set up either as: Part of a 401(k) plan, or A plan using IRAs (SIMPLE IRA). Ez worksheet This chapter only discusses the SIMPLE plan rules that relate to SIMPLE IRAs. Ez worksheet See chapter 3 of Publication 560 for information on any special rules for SIMPLE plans that do not use IRAs. Ez worksheet If your employer maintains a SIMPLE plan, you must be notified, in writing, that you can choose the financial institution that will serve as trustee for your SIMPLE IRA and that you can roll over or transfer your SIMPLE IRA to another financial institution. Ez worksheet See Rollovers and Transfers Exception, later under When Can You Withdraw or Use Assets. Ez worksheet What Is a SIMPLE Plan? A SIMPLE plan is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. Ez worksheet See chapter 3 of Publication 560 for information on the requirements employers must satisfy to set up a SIMPLE plan. Ez worksheet A SIMPLE plan is a written agreement (salary reduction agreement) between you and your employer that allows you, if you are an eligible employee (including a self-employed individual), to choose to: Reduce your compensation (salary) by a certain percentage each pay period, and Have your employer contribute the salary reductions to a SIMPLE IRA on your behalf. Ez worksheet These contributions are called salary reduction contributions. Ez worksheet All contributions under a SIMPLE IRA plan must be made to SIMPLE IRAs, not to any other type of IRA. Ez worksheet The SIMPLE IRA can be an individual retirement account or an individual retirement annuity, described in chapter 1. Ez worksheet Contributions are made on behalf of eligible employees. Ez worksheet (See Eligible Employees below. Ez worksheet ) Contributions are also subject to various limits. Ez worksheet (See How Much Can Be Contributed on Your Behalf , later. Ez worksheet ) In addition to salary reduction contributions, your employer must make either matching contributions or nonelective contributions. Ez worksheet See How Are Contributions Made , later. Ez worksheet You may be able to claim a credit for contributions to your SIMPLE plan. Ez worksheet For more information, see chapter 4. Ez worksheet Eligible Employees You must be allowed to participate in your employer's SIMPLE plan if you: Received at least $5,000 in compensation from your employer during any 2 years prior to the current year, and Are reasonably expected to receive at least $5,000 in compensation during the calendar year for which contributions are made. Ez worksheet Self-employed individual. Ez worksheet For SIMPLE plan purposes, the term employee includes a self-employed individual who received earned income. Ez worksheet Excludable employees. Ez worksheet Your employer can exclude the following employees from participating in the SIMPLE plan. Ez worksheet Employees whose retirement benefits are covered by a collective bargaining agreement (union contract). Ez worksheet Employees who are nonresident aliens and received no earned income from sources within the United States. Ez worksheet Employees who would not have been eligible employees if an acquisition, disposition, or similar transaction had not occurred during the year. Ez worksheet Compensation. Ez worksheet For purposes of the SIMPLE plan rules, your compensation for a year generally includes the following amounts. Ez worksheet Wages, tips, and other pay from your employer that is subject to income tax withholding. Ez worksheet Deferred amounts elected under any 401(k) plans, 403(b) plans, government (section 457) plans, SEP plans, and SIMPLE plans. Ez worksheet Self-employed individual compensation. Ez worksheet For purposes of the SIMPLE plan rules, if you are self-employed, your compensation for a year is your net earnings from self-employment (Schedule SE (Form 1040), Section A, line 4, or Section B, line 6) before subtracting any contributions made to a SIMPLE IRA on your behalf. Ez worksheet For these purposes, net earnings from self-employment include services performed while claiming exemption from self-employment tax as a member of a group conscientiously opposed to social security benefits. Ez worksheet How Are Contributions Made? Contributions under a salary reduction agreement are called salary reduction contributions. Ez worksheet They are made on your behalf by your employer. Ez worksheet Your employer must also make either matching contributions or nonelective contributions. Ez worksheet Salary reduction contributions. Ez worksheet During the 60-day period before the beginning of any year, and during the 60-day period before you are eligible, you can choose salary reduction contributions expressed either as a percentage of compensation, or as a specific dollar amount (if your employer offers this choice). Ez worksheet You can choose to cancel the election at any time during the year. Ez worksheet Salary reduction contributions are also referred to as “elective deferrals. Ez worksheet ” Your employer cannot place restrictions on the contributions amount (such as by limiting the contributions percentage), except to comply with the salary reduction contributions limit, discussed under How Much Can Be Contributed on Your Behalf, later. Ez worksheet Matching contributions. Ez worksheet Unless your employer chooses to make nonelective contributions, your employer must make contributions equal to the salary reduction contributions you choose (elect), but only up to certain limits. Ez worksheet See How Much Can Be Contributed on Your Behalf below. Ez worksheet These contributions are in addition to the salary reduction contributions and must be made to the SIMPLE IRAs of all eligible employees (defined earlier) who chose salary reductions. Ez worksheet These contributions are referred to as matching contributions. Ez worksheet Matching contributions on behalf of a self-employed individual are not treated as salary reduction contributions. Ez worksheet Nonelective contributions. Ez worksheet Instead of making matching contributions, your employer may be able to choose to make nonelective contributions on behalf of all eligible employees. Ez worksheet These nonelective contributions must be made on behalf of each eligible employee who has at least $5,000 of compensation from your employer, whether or not the employee chose salary reductions. Ez worksheet One of the requirements your employer must satisfy is notifying the employees that the election was made. Ez worksheet For other requirements that your employer must satisfy, see chapter 3 of Publication 560. Ez worksheet How Much Can Be Contributed on Your Behalf? The limits on contributions to a SIMPLE IRA vary with the type of contribution that is made. Ez worksheet Salary reduction contributions limit. Ez worksheet Salary reduction contributions (employee-chosen contributions or elective deferrals) that your employer can make on your behalf under a SIMPLE plan are limited to $12,000 for 2013. Ez worksheet The limitation remains at $12,000 for 2014. Ez worksheet If you are a participant in any other employer plans during 2013 and you have elective salary reductions or deferred compensation under those plans, the salary reduction contributions under the SIMPLE plan also are included in the annual limit of $17,500 for 2013 on exclusions of salary reductions and other elective deferrals. Ez worksheet You, not your employer, are responsible for monitoring compliance with these limits. Ez worksheet Additional elective deferrals can be contributed to your SIMPLE plan if: You reached age 50 by the end of 2013, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions, such as the regular annual limit. Ez worksheet The most that can be contributed in additional elective deferrals to your SIMPLE plan is the lesser of the following two amounts. Ez worksheet $2,500 for 2013, or Your compensation for the year reduced by your other elective deferrals for the year. Ez worksheet The additional deferrals are not subject to any other contribution limit and are not taken into account in applying other contribution limits. Ez worksheet The additional deferrals are not subject to the nondiscrimination rules as long as all eligible participants are allowed to make them. Ez worksheet Matching employer contributions limit. Ez worksheet Generally, your employer must make matching contributions to your SIMPLE IRA in an amount equal to your salary reduction contributions. Ez worksheet These matching contributions cannot be more than 3% of your compensation for the calendar year. Ez worksheet See Matching contributions less than 3% below. Ez worksheet Example 1. Ez worksheet In 2013, Joshua was a participant in his employer's SIMPLE plan. Ez worksheet His compensation, before SIMPLE plan contributions, was $41,600 ($800 per week). Ez worksheet Instead of taking it all in cash, Joshua elected to have 12. Ez worksheet 5% of his weekly pay ($100) contributed to his SIMPLE IRA. Ez worksheet For the full year, Joshua's salary reduction contributions were $5,200, which is less than the $12,000 limit on these contributions. Ez worksheet Under the plan, Joshua's employer was required to make matching contributions to Joshua's SIMPLE IRA. Ez worksheet Because his employer's matching contributions must equal Joshua's salary reductions, but cannot be more than 3% of his compensation (before salary reductions) for the year, his employer's matching contribution was limited to $1,248 (3% of $41,600). Ez worksheet Example 2. Ez worksheet Assume the same facts as in Example 1 , except that Joshua's compensation for the year was $408,163 and he chose to have 2. Ez worksheet 94% of his weekly pay contributed to his SIMPLE IRA. Ez worksheet In this example, Joshua's salary reduction contributions for the year (2. Ez worksheet 94% × $408,163) were equal to the 2013 limit for salary reduction contributions ($12,000). Ez worksheet Because 3% of Joshua's compensation ($12,245) is more than the amount his employer was required to match ($12,000), his employer's matching contributions were limited to $12,000. Ez worksheet In this example, total contributions made on Joshua's behalf for the year were $24,000 ($12,000 (Joshua's contributions) + $12,000 (matching contributions)), the maximum contributions permitted under a SIMPLE IRA for 2013. Ez worksheet Matching contributions less than 3%. Ez worksheet Your employer can reduce the 3% limit on matching contributions for a calendar year, but only if: The limit is not reduced below 1%, The limit is not reduced for more than 2 years out of the 5-year period that ends with (and includes) the year for which the election is effective, and Employees are notified of the reduced limit within a reasonable period of time before the 60-day election period during which they can enter into salary reduction agreements. Ez worksheet For purposes of applying the rule in item (2) in determining whether the limit was reduced below 3% for the year, any year before the first year in which your employer (or a former employer) maintains a SIMPLE IRA plan will be treated as a year for which the limit was 3%. Ez worksheet If your employer chooses to make nonelective contributions for a year, that year also will be treated as a year for which the limit was 3%. Ez worksheet Nonelective employer contributions limit. Ez worksheet If your employer chooses to make nonelective contributions, instead of matching contributions, to each eligible employee's SIMPLE IRA, contributions must be 2% of your compensation for the entire year. Ez worksheet For 2013, only $255,000 of your compensation can be taken into account to figure the contribution limit. Ez worksheet Your employer can substitute the 2% nonelective contribution for the matching contribution for a year if both of the following requirements are met. Ez worksheet Eligible employees are notified that a 2% nonelective contribution will be made instead of a matching contribution. Ez worksheet This notice is provided within a reasonable period during which employees can enter into salary reduction agreements. Ez worksheet Example 3. Ez worksheet Assume the same facts as in Example 2 , except that Joshua's employer chose to make nonelective contributions instead of matching contributions. Ez worksheet Because his employer's nonelective contributions are limited to 2% of up to $255,000 of Joshua's compensation, his employer's contribution to Joshua's SIMPLE IRA was limited to $5,100. Ez worksheet In this example, total contributions made on Joshua's behalf for the year were $17,100 (Joshua's salary reductions of $12,000 plus his employer's contribution of $5,100). Ez worksheet Traditional IRA mistakenly moved to SIMPLE IRA. Ez worksheet If you mistakenly roll over or transfer an amount from a traditional IRA to a SIMPLE IRA, you can later recharacterize the amount as a contribution to another traditional IRA. Ez worksheet For more information, see Recharacterizations in chapter 1. Ez worksheet Recharacterizing employer contributions. Ez worksheet You cannot recharacterize employer contributions (including elective deferrals) under a SEP or SIMPLE plan as contributions to another IRA. Ez worksheet SEPs are discussed in chapter 2 of Publication 560. Ez worksheet SIMPLE plans are discussed in this chapter. Ez worksheet Converting from a SIMPLE IRA. Ez worksheet Generally, you can convert an amount in your SIMPLE IRA to a Roth IRA under the same rules explained in chapter 1 under Converting From Any Traditional IRA Into a Roth IRA . Ez worksheet However, you cannot convert any amount distributed from the SIMPLE IRA during the 2-year period beginning on the date you first participated in any SIMPLE IRA plan maintained by your employer. Ez worksheet When Can You Withdraw or Use Assets? Generally, the same distribution (withdrawal) rules that apply to traditional IRAs apply to SIMPLE IRAs. Ez worksheet These rules are discussed in chapter 1. Ez worksheet Your employer cannot restrict you from taking distributions from a SIMPLE IRA. Ez worksheet Are Distributions Taxable? Generally, distributions from a SIMPLE IRA are fully taxable as ordinary income. Ez worksheet If the distribution is an early distribution (discussed in chapter 1), it may be subject to the additional tax on early distributions. Ez worksheet See Additional Tax on Early Distributions, later. Ez worksheet Rollovers and Transfers Exception Generally, rollovers and trustee-to-trustee transfers are not taxable distributions. Ez worksheet Two-year rule. Ez worksheet To qualify as a tax-free rollover (or a tax-free trustee-to-trustee transfer), a rollover distribution (or a transfer) made from a SIMPLE IRA during the 2-year period beginning on the date on which you first participated in your employer's SIMPLE plan must be contributed (or transferred) to another SIMPLE IRA. Ez worksheet The 2-year period begins on the first day on which contributions made by your employer are deposited in your SIMPLE IRA. Ez worksheet After the 2-year period, amounts in a SIMPLE IRA can be rolled over or transferred tax free to an IRA other than a SIMPLE IRA, or to a qualified plan, a tax-sheltered annuity plan (section 403(b) plan), or deferred compensation plan of a state or local government (section 457 plan). Ez worksheet Additional Tax on Early Distributions The additional tax on early distributions (discussed in chapter 1) applies to SIMPLE IRAs. Ez worksheet If a distribution is an early distribution and occurs during the 2-year period following the date on which you first participated in your employer's SIMPLE plan, the additional tax on early distributions is increased from 10% to 25%. Ez worksheet If a rollover distribution (or transfer) from a SIMPLE IRA does not satisfy the 2-year rule, and is otherwise an early distribution, the additional tax imposed because of the early distribution is increased from 10% to 25% of the amount distributed. Ez worksheet Prev Up Next Home More Online Publications