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Free Income Tax

2013 Federal Tax Forms 1040ezHow To Fill Out 1040ez FormTax Form 2010Freetax UsaFile Corporate Tax Extension OnlineIrs Form 10401040ez 2010 FormIrs Form 1040esInstructions For 1040x 20121040ez Instructions 20132013 1040ezFree Online TaxesE File 2011 Taxes OnlineAmend 2011 Tax Return OnlineFile State Tax Online FreeFiling 1040x With Form 982Amend 2011 Tax2012 Form 1040 EzIrs Tax Extension FormTax Amendment Form 20132012 Tax Forms 1040aState Tax Forms 2011Can I Do My State Taxes Online For FreeHow To Do State TaxesH&r Block Free Military TaxesForm 1040-x2012 Income TaxForm 1040 Ez 2013H&r Block Amended Return 2012My1040ez Com2011 Taxes FileHow To File An Ammended ReturnFiling Amended Tax Return OnlineIrs 1040File 2013 State TaxesH&r Block Income TaxFiling Late Taxes For 2012Taxact 2007 Delux EditionIrs.gov/1040xWhere To E- File 2012 Federal Tax Return For Free

Free Income Tax

Free income tax Part One -   The Income Tax Return The four chapters in this part provide basic information on the tax system. Free income tax They take you through the first steps of filling out a tax return—such as deciding what your filing status is, how many exemptions you can take, and what form to file. Free income tax They also discuss recordkeeping requirements, IRS e-file (electronic filing), certain penalties, and the two methods used to pay tax during the year: withholding and estimated tax. Free income tax Table of Contents 1. Free income tax   Filing InformationWhat's New Reminders Introduction Do I Have To File a Return?Individuals—In General Dependents Certain Children Under Age 19 or Full-Time Students Self-Employed Persons Aliens Who Should File Which Form Should I Use?Form 1040EZ Form 1040A Form 1040 Does My Return Have To Be on Paper?IRS e-file When Do I Have To File?Private delivery services. Free income tax Extensions of Time To File How Do I Prepare My Return?When Do I Report My Income and Expenses? Social Security Number (SSN) Presidential Election Campaign Fund Computations Attachments Third Party Designee Signatures Paid Preparer Refunds Amount You Owe Gift To Reduce Debt Held by the Public Name and Address Where Do I File? What Happens After I File?What Records Should I Keep? Why Keep Records? Kinds of Records to Keep Basic Records How Long to Keep Records Refund Information Interest on Refunds Change of Address What If I Made a Mistake?Amended Returns and Claims for Refund Penalties Identity Theft 2. Free income tax   Filing StatusWhat's New Introduction Useful Items - You may want to see: Marital StatusDivorced persons. Free income tax Divorce and remarriage. Free income tax Annulled marriages. Free income tax Head of household or qualifying widow(er) with dependent child. Free income tax Considered married. Free income tax Same-sex marriage. Free income tax Spouse died during the year. Free income tax Married persons living apart. Free income tax Single Married Filing JointlyFiling a Joint Return Married Filing SeparatelySpecial Rules Head of HouseholdConsidered Unmarried Keeping Up a Home Qualifying Person Qualifying Widow(er) With Dependent Child 3. Free income tax   Personal Exemptions and DependentsWhat's New Introduction Useful Items - You may want to see: ExemptionsPersonal Exemptions Exemptions for Dependents Qualifying Child Qualifying Relative Phaseout of Exemptions Social Security Numbers for DependentsBorn and died in 2013. Free income tax Taxpayer identification numbers for aliens. Free income tax Taxpayer identification numbers for adoptees. Free income tax 4. Free income tax   Tax Withholding and Estimated TaxWhat's New for 2014 Reminders Introduction Useful Items - You may want to see: Tax Withholding for 2014Salaries and Wages Tips Taxable Fringe Benefits Sick Pay Pensions and Annuities Gambling Winnings Unemployment Compensation Federal Payments Backup Withholding Estimated Tax for 2014Who Does Not Have To Pay Estimated Tax Who Must Pay Estimated Tax How To Figure Estimated Tax When To Pay Estimated Tax How To Figure Each Payment How To Pay Estimated Tax Credit for Withholding and Estimated Tax for 2013Withholding Estimated Tax Underpayment Penalty for 2013 Prev  Up  Next   Home   More Online Publications
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U.S. Federal Government

Learn how the U.S. federal government is organized and search for departments and agencies by name or by branch.


Contact Federal Government Departments and Agencies

  • A-Z Index - If you know the name of the federal government department or agency you're looking for, get contact information through our A-Z index. 

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How the U.S. Government Is Organized

The Constitution of the United States divides the federal government into three branches to ensure a central government in which no individual or group gains too much control:

  1. Legislative – Makes laws (Congress)
  2. Executive – Carries out laws (President, Vice President, Cabinet)
  3. Judicial – Evaluates laws (Supreme Court and Other Courts)

Each branch of government can change acts of the other branches as follows:

  • The president can veto laws passed by Congress.
  • Congress confirms or rejects the president's appointments and can remove the president from office in exceptional circumstances.
  • The justices of the Supreme Court, who can overturn unconstitutional laws, are appointed by the president and confirmed by the Senate.

The U.S. federal government seeks to act in the best interests of its citizens through this system of checks and balances.

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Legislative Branch

The legislative branch enacts legislation, confirms or rejects presidential appointments, and has the authority to declare war.

This branch includes Congress (the Senate and House of Representatives) and several agencies that provide support services to Congress. American citizens have the right to vote for senators and representatives through free, confidential ballots.

  • Senate - There are two elected senators per state, totaling 100 senators. A senate term is six years and there's no limit to the number of terms an individual can serve.
  • House of Representatives - There are 435 elected representatives, which are divided among the 50 states in proportion to their total population. There are additional non-voting delegates who represent the District of Columbia and the territories. A representative serves a two-year term, and there's no limit to the number of terms an individual can serve.

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Executive Branch

The executive branch carries out and enforces laws. It includes the president, vice president, the Cabinet, executive departments, independent agencies, and other boards, commissions, and committees.

American citizens have the right to vote for the president and vice president through free, confidential ballots.

Key roles of the executive branch include:

  • President - The president leads the country. He/she is the head of state, leader of the federal government, and commander-in-chief of the United States Armed Forces. The president serves a four-year term and can be elected no more than two times.
  • Vice President - The vice president supports the president. If the president is unable to serve, the vice president becomes president. He/she can serve an unlimited number of four-year terms.
  • The Cabinet - Cabinet members serve as advisors to the president. They include the vice president and the heads of executive departments. Cabinet members are nominated by the president and must be approved by the Senate (with at least 51 votes).

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Judicial Branch

The judicial branch interprets the meaning of laws, applies laws to individual cases, and decides if laws violate the Constitution.

The judicial branch is comprised of the Supreme Court and other federal courts.

  • Supreme Court - The Supreme Court is the highest court in the United States. The justices of the Supreme Court are nominated by the president and must be approved by the Senate (with at least 51 votes). Congress decides the number of justices. Currently, there are nine. There is no fixed term for justices. They serve until their death, retirement, or removal in exceptional circumstances.
  • Other Federal Courts - The Constitution grants Congress the authority to establish other federal courts.

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The Free Income Tax

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