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Irs 1040ez 2010Irs 1040ez 2010 3. Irs 1040ez 2010 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%. Irs 1040ez 2010 Traditional IRA mistakenly moved to SIMPLE IRA. Irs 1040ez 2010 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). Irs 1040ez 2010 It explains what a SIMPLE plan is, contributions to a SIMPLE plan, and distributions from a SIMPLE plan. Irs 1040ez 2010 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). Irs 1040ez 2010 This chapter only discusses the SIMPLE plan rules that relate to SIMPLE IRAs. Irs 1040ez 2010 See chapter 3 of Publication 560 for information on any special rules for SIMPLE plans that do not use IRAs. Irs 1040ez 2010 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. Irs 1040ez 2010 See Rollovers and Transfers Exception, later under When Can You Withdraw or Use Assets. Irs 1040ez 2010 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. Irs 1040ez 2010 See chapter 3 of Publication 560 for information on the requirements employers must satisfy to set up a SIMPLE plan. Irs 1040ez 2010 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. Irs 1040ez 2010 These contributions are called salary reduction contributions. Irs 1040ez 2010 All contributions under a SIMPLE IRA plan must be made to SIMPLE IRAs, not to any other type of IRA. Irs 1040ez 2010 The SIMPLE IRA can be an individual retirement account or an individual retirement annuity, described in chapter 1. Irs 1040ez 2010 Contributions are made on behalf of eligible employees. Irs 1040ez 2010 (See Eligible Employees below. Irs 1040ez 2010 ) Contributions are also subject to various limits. Irs 1040ez 2010 (See How Much Can Be Contributed on Your Behalf , later. Irs 1040ez 2010 ) In addition to salary reduction contributions, your employer must make either matching contributions or nonelective contributions. Irs 1040ez 2010 See How Are Contributions Made , later. Irs 1040ez 2010 You may be able to claim a credit for contributions to your SIMPLE plan. Irs 1040ez 2010 For more information, see chapter 4. Irs 1040ez 2010 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. Irs 1040ez 2010 Self-employed individual. Irs 1040ez 2010 For SIMPLE plan purposes, the term employee includes a self-employed individual who received earned income. Irs 1040ez 2010 Excludable employees. Irs 1040ez 2010 Your employer can exclude the following employees from participating in the SIMPLE plan. Irs 1040ez 2010 Employees whose retirement benefits are covered by a collective bargaining agreement (union contract). Irs 1040ez 2010 Employees who are nonresident aliens and received no earned income from sources within the United States. Irs 1040ez 2010 Employees who would not have been eligible employees if an acquisition, disposition, or similar transaction had not occurred during the year. Irs 1040ez 2010 Compensation. Irs 1040ez 2010 For purposes of the SIMPLE plan rules, your compensation for a year generally includes the following amounts. Irs 1040ez 2010 Wages, tips, and other pay from your employer that is subject to income tax withholding. Irs 1040ez 2010 Deferred amounts elected under any 401(k) plans, 403(b) plans, government (section 457) plans, SEP plans, and SIMPLE plans. Irs 1040ez 2010 Self-employed individual compensation. Irs 1040ez 2010 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. Irs 1040ez 2010 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. Irs 1040ez 2010 How Are Contributions Made? Contributions under a salary reduction agreement are called salary reduction contributions. Irs 1040ez 2010 They are made on your behalf by your employer. Irs 1040ez 2010 Your employer must also make either matching contributions or nonelective contributions. Irs 1040ez 2010 Salary reduction contributions. Irs 1040ez 2010 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). Irs 1040ez 2010 You can choose to cancel the election at any time during the year. Irs 1040ez 2010 Salary reduction contributions are also referred to as “elective deferrals. Irs 1040ez 2010 ” 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. Irs 1040ez 2010 Matching contributions. Irs 1040ez 2010 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. Irs 1040ez 2010 See How Much Can Be Contributed on Your Behalf below. Irs 1040ez 2010 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. Irs 1040ez 2010 These contributions are referred to as matching contributions. Irs 1040ez 2010 Matching contributions on behalf of a self-employed individual are not treated as salary reduction contributions. Irs 1040ez 2010 Nonelective contributions. Irs 1040ez 2010 Instead of making matching contributions, your employer may be able to choose to make nonelective contributions on behalf of all eligible employees. Irs 1040ez 2010 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. Irs 1040ez 2010 One of the requirements your employer must satisfy is notifying the employees that the election was made. Irs 1040ez 2010 For other requirements that your employer must satisfy, see chapter 3 of Publication 560. Irs 1040ez 2010 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. Irs 1040ez 2010 Salary reduction contributions limit. Irs 1040ez 2010 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. Irs 1040ez 2010 The limitation remains at $12,000 for 2014. Irs 1040ez 2010 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. Irs 1040ez 2010 You, not your employer, are responsible for monitoring compliance with these limits. Irs 1040ez 2010 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. Irs 1040ez 2010 The most that can be contributed in additional elective deferrals to your SIMPLE plan is the lesser of the following two amounts. Irs 1040ez 2010 $2,500 for 2013, or Your compensation for the year reduced by your other elective deferrals for the year. Irs 1040ez 2010 The additional deferrals are not subject to any other contribution limit and are not taken into account in applying other contribution limits. Irs 1040ez 2010 The additional deferrals are not subject to the nondiscrimination rules as long as all eligible participants are allowed to make them. Irs 1040ez 2010 Matching employer contributions limit. Irs 1040ez 2010 Generally, your employer must make matching contributions to your SIMPLE IRA in an amount equal to your salary reduction contributions. Irs 1040ez 2010 These matching contributions cannot be more than 3% of your compensation for the calendar year. Irs 1040ez 2010 See Matching contributions less than 3% below. Irs 1040ez 2010 Example 1. Irs 1040ez 2010 In 2013, Joshua was a participant in his employer's SIMPLE plan. Irs 1040ez 2010 His compensation, before SIMPLE plan contributions, was $41,600 ($800 per week). Irs 1040ez 2010 Instead of taking it all in cash, Joshua elected to have 12. Irs 1040ez 2010 5% of his weekly pay ($100) contributed to his SIMPLE IRA. Irs 1040ez 2010 For the full year, Joshua's salary reduction contributions were $5,200, which is less than the $12,000 limit on these contributions. Irs 1040ez 2010 Under the plan, Joshua's employer was required to make matching contributions to Joshua's SIMPLE IRA. Irs 1040ez 2010 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). Irs 1040ez 2010 Example 2. Irs 1040ez 2010 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. Irs 1040ez 2010 94% of his weekly pay contributed to his SIMPLE IRA. Irs 1040ez 2010 In this example, Joshua's salary reduction contributions for the year (2. Irs 1040ez 2010 94% × $408,163) were equal to the 2013 limit for salary reduction contributions ($12,000). Irs 1040ez 2010 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. Irs 1040ez 2010 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. Irs 1040ez 2010 Matching contributions less than 3%. Irs 1040ez 2010 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. Irs 1040ez 2010 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%. Irs 1040ez 2010 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%. Irs 1040ez 2010 Nonelective employer contributions limit. Irs 1040ez 2010 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. Irs 1040ez 2010 For 2013, only $255,000 of your compensation can be taken into account to figure the contribution limit. Irs 1040ez 2010 Your employer can substitute the 2% nonelective contribution for the matching contribution for a year if both of the following requirements are met. Irs 1040ez 2010 Eligible employees are notified that a 2% nonelective contribution will be made instead of a matching contribution. Irs 1040ez 2010 This notice is provided within a reasonable period during which employees can enter into salary reduction agreements. Irs 1040ez 2010 Example 3. Irs 1040ez 2010 Assume the same facts as in Example 2 , except that Joshua's employer chose to make nonelective contributions instead of matching contributions. Irs 1040ez 2010 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. Irs 1040ez 2010 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). Irs 1040ez 2010 Traditional IRA mistakenly moved to SIMPLE IRA. Irs 1040ez 2010 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. Irs 1040ez 2010 For more information, see Recharacterizations in chapter 1. Irs 1040ez 2010 Recharacterizing employer contributions. Irs 1040ez 2010 You cannot recharacterize employer contributions (including elective deferrals) under a SEP or SIMPLE plan as contributions to another IRA. Irs 1040ez 2010 SEPs are discussed in chapter 2 of Publication 560. Irs 1040ez 2010 SIMPLE plans are discussed in this chapter. Irs 1040ez 2010 Converting from a SIMPLE IRA. Irs 1040ez 2010 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 . Irs 1040ez 2010 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. Irs 1040ez 2010 When Can You Withdraw or Use Assets? Generally, the same distribution (withdrawal) rules that apply to traditional IRAs apply to SIMPLE IRAs. Irs 1040ez 2010 These rules are discussed in chapter 1. Irs 1040ez 2010 Your employer cannot restrict you from taking distributions from a SIMPLE IRA. Irs 1040ez 2010 Are Distributions Taxable? Generally, distributions from a SIMPLE IRA are fully taxable as ordinary income. Irs 1040ez 2010 If the distribution is an early distribution (discussed in chapter 1), it may be subject to the additional tax on early distributions. Irs 1040ez 2010 See Additional Tax on Early Distributions, later. Irs 1040ez 2010 Rollovers and Transfers Exception Generally, rollovers and trustee-to-trustee transfers are not taxable distributions. Irs 1040ez 2010 Two-year rule. Irs 1040ez 2010 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. Irs 1040ez 2010 The 2-year period begins on the first day on which contributions made by your employer are deposited in your SIMPLE IRA. Irs 1040ez 2010 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). Irs 1040ez 2010 Additional Tax on Early Distributions The additional tax on early distributions (discussed in chapter 1) applies to SIMPLE IRAs. Irs 1040ez 2010 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%. Irs 1040ez 2010 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. 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Leasing a Car
Tips for Leasing a Car
When you lease, you pay to drive someone else's vehicle. Monthly lease payments may be lower than loan payments, but at the end of the lease you have no ownership or equity in the car. To get the best deal, follow the advice below in addition to the general suggestions for buying a car.
- To help you compare leasing versus owning, the Consumer Leasing Act requires leasing companies to give you information on monthly payments and other charges. Check out Leaseguide.com, and Leasecompare.com for online information on leases including current lease deals.
- Consider using an independent agent rather than the dealer. You might find a better deal. Most financial institutions that offer auto financing also offer leasing options.
- Ask for details on wear and tear standards. Dings that you regard as normal wear and tear could be billed as significant damage at the end of your lease.
- Find out how many miles you can drive in a year. Most leases allow 12,000 to 15,000 miles a year. Expect a charge of 10 to 25 cents for each additional mile.
- Check the manufacturer's warranty. It should cover the entire lease term and the number of miles you are likely to drive.
- Ask the dealer what happens if you give up the car before the end of your lease. There may be extra fees for doing so.
- Ask what happens if the car is involved in an accident.
- Get all the terms in writing. Everything included with the car should be listed on the lease to avoid being charged for "missing" equipment later.
The Federal Reserve Board of Governors offers a consumer guide to auto leasing.
Most car buyers today need some form of financing to purchase a new vehicle. Many use direct lending, that is, a loan from a finance company, bank, or credit union. In direct lending, a buyer agrees to pay the amount financed, plus an agreed-upon finance charge, over a specified period. Once a buyer and a vehicle dealership enter into a contract to purchase a vehicle, the buyer uses the loan proceeds from the direct lender to pay the dealership for the vehicle. Another common form is dealership financing, which offers convenience, financing options, and sometimes special, manufacturer-sponsored, low-rate deals. Before you make a financing decision, it's important to do your research:
- Decide in advance how much you can afford to spend and stick to your limit.
- Get a copy of your credit report and correct any errors before applying for a loan.
- Check buying guides to identify price ranges and best available deals.
Credit and Sublease Brokers
Con artists often prey on people who have bad credit and who cannot get car loans. "Credit brokers" promise to get a loan for you in exchange for a high fee. In many cases, the "broker" takes the fee and disappears. "Sublease brokers" charge a fee to arrange for you to "sublease" or "take over" someone else's car lease or loan. Such deals usually violate the original loan or lease agreement. Your car can be repossessed even if you've made all of your payments. You also might have trouble insuring your car.