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State Taxes

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State Taxes

State taxes Publication 1212 - Introductory Material Table of Contents Future Developments Photographs of Missing Children IntroductionOrdering forms and publications. State taxes Tax questions. State taxes Useful Items - You may want to see: Future Developments For the latest information about developments related to Pub. State taxes 1212, such as legislation enacted after it was published, go to www. State taxes irs. State taxes gov/pub1212. State taxes Photographs of Missing Children The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. State taxes Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. State taxes You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. State taxes Introduction This publication has two purposes. State taxes Its primary purpose is to help brokers and other middlemen identify publicly offered original issue discount (OID) debt instruments they may hold as nominees for the true owners, so they can file Forms 1099-OID or Forms 1099-INT as required. State taxes The other purpose of the publication is to help owners of publicly offered OID debt instruments determine how much OID to report on their income tax returns. State taxes The list of publicly offered OID debt instruments (OID list) is on the IRS website. State taxes The original issue discount tables, Sections I-A through III-F, are only available on the IRS website at www. State taxes irs. State taxes gov/pub1212 by clicking the link under Recent Developments. State taxes The tables are posted to the website in late November or early December of each year. State taxes The information on these lists come from the issuers of the debt instruments and from financial publications and is updated annually. State taxes (However, see Debt Instruments Not on the OID List, later. State taxes ) Brokers and other middlemen can rely on this list to determine, for information reporting purposes, whether a debt instrument was issued at a discount and the OID to be reported on information returns. State taxes However, because the information in the list has generally not been verified by the IRS as correct, the following tax matters are subject to change upon examination by the IRS. State taxes The OID reported by owners of a debt instrument on their income tax returns. State taxes The issuer's classification of an instrument as debt for federal income tax purposes. State taxes Instructions for issuers of OID debt instruments. State taxes   In general, issuers of publicly offered OID debt instruments must, within 30 days after the issue date, report information about the instruments to the IRS on Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. State taxes See the form instructions for more information. State taxes Issuers should report errors in and omissions from the list in writing at the following address:  IRS OID Publication Project SE:W:CAR:MP:T  1111 Constitution Ave. State taxes NW, IR-6526 Washington, D. State taxes C. State taxes 20224 REMIC and CDO information reporting requirements. State taxes   Brokers and other middlemen must follow special information reporting requirements for real estate mortgage investment conduits (REMIC) regular, and collateralized debt obligations (CDO) interests. State taxes The rules are explained in Publication 938, Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)). State taxes   Holders of interests in REMICs and CDOs should see chapter 1 of Publication 550 for information on REMICs and CDOs. State taxes Comments and suggestions. State taxes   We welcome your comments about this publication and your suggestions for future editions. State taxes   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. State taxes NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. State taxes Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. State taxes   You can send your comments from www. State taxes irs. State taxes gov/formspubs/. State taxes Click on “More Information” and then on “Comment on Tax Forms and Publications. State taxes ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. State taxes Ordering forms and publications. State taxes   Visit www. State taxes irs. State taxes gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. State taxes Internal Revenue Service 1201 N. State taxes Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. State taxes   If you have a tax question, check the information available on IRS. State taxes gov or call 1-800-829-1040. State taxes We cannot answer tax questions sent to any of the preceding addresses. State taxes Useful Items - You may want to see: Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 550 Investment Income and Expenses 938 Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)). State taxes Form (and Instructions) 1096 Annual Summary and Transmittal of U. State taxes S. State taxes Information Returns 1099-B Proceeds From Broker and Barter Exchange Transactions 1099-INT Interest Income 1099-OID Original Issue Discount 8949 Sales and Other Dispositions of Capital Assets Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends Schedule D (Form 1040) Capital Gains and Losses W-8 Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY See How To Get Tax Help near the end of this publication for information about getting publications and forms. State taxes Prev  Up  Next   Home   More Online Publications
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The State Taxes

State taxes 4. State taxes   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. State taxes Loan secured by benefits. State taxes Waiver of survivor benefits. State taxes Waiver of 30-day waiting period before annuity starting date. State taxes Involuntary cash-out of benefits not more than dollar limit. State taxes Exception for certain loans. State taxes Exception for QDRO. State taxes SIMPLE and safe harbor 401(k) plan exception. State taxes Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. State taxes Installment percentage. State taxes Extended period for making contributions. State taxes 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. State taxes Caution: Form 5500-EZ not required. State taxes Form 5500. State taxes Electronic filing of Forms 5500 and 5500-SF. State taxes 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. State taxes dol. State taxes gov/ebsa/pdf/2013-5500. State taxes pdf www. State taxes dol. State taxes gov/ebsa/pdf/2013-5500-SF. State taxes pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. State taxes 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. State taxes 1040 U. State taxes S. State taxes 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. State taxes 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. State taxes 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. State taxes R. State taxes 10 plans. State taxes A sole proprietor or a partnership can set up one of these plans. State taxes A common-law employee or a partner cannot set up one of these plans. State taxes The plans described here can also be set up and maintained by employers that are corporations. State taxes All the rules discussed here apply to corporations except where specifically limited to the self-employed. State taxes The plan must be for the exclusive benefit of employees or their beneficiaries. State taxes These qualified plans can include coverage for a self-employed individual. State taxes As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. State taxes The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. State taxes Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. State taxes 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. State taxes Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. State taxes It provides benefits to a participant largely based on the amount contributed to that participant's account. State taxes Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. State taxes A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. State taxes Profit-sharing plan. State taxes   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). State taxes 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. State taxes An employer may even make no contribution to the plan for a given year. State taxes   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. State taxes   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). State taxes Money purchase pension plan. State taxes   Contributions to a money purchase pension plan are fixed and are not based on your business profits. State taxes 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. State taxes This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. State taxes Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. State taxes Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. State taxes Actuarial assumptions and computations are required to figure these contributions. State taxes Generally, you will need continuing professional help to have a defined benefit plan. State taxes Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. State taxes 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. State taxes The following is a brief overview of important qualification rules that generally have not yet been discussed. State taxes It is not intended to be all-inclusive. State taxes See Setting Up a Qualified Plan , later. State taxes Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. State taxes 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. State taxes Plan assets must not be diverted. State taxes   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. State taxes As a general rule, the assets cannot be diverted to the employer. State taxes Minimum coverage requirement must be met. State taxes   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. State taxes 50 employees, or The greater of: 40% of all employees, or Two employees. State taxes If there is only one employee, the plan must benefit that employee. State taxes Contributions or benefits must not discriminate. State taxes   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. State taxes Contributions and benefits must not be more than certain limits. State taxes   Your plan must not provide for contributions or benefits that are more than certain limits. State taxes 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. State taxes These limits are discussed later in this chapter under Contributions. State taxes Minimum vesting standard must be met. State taxes   Your plan must satisfy certain requirements regarding when benefits vest. State taxes A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. State taxes A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. State taxes Special rules apply to forfeited benefit amounts. State taxes 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. State taxes   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. State taxes Forfeitures must be used instead to reduce employer contributions. State taxes Participation. State taxes   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. State taxes Has reached age 21. State taxes 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). State taxes A plan cannot exclude an employee because he or she has reached a specified age. State taxes Leased employee. State taxes   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. State taxes These rules include those in all the following areas. State taxes Nondiscrimination in coverage, contributions, and benefits. State taxes Minimum age and service requirements. State taxes Vesting. State taxes Limits on contributions and benefits. State taxes Top-heavy plan requirements. State taxes Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. State taxes Benefit payment must begin when required. State taxes   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. State taxes The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. State taxes The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. State taxes The plan year in which the participant separates from service. State taxes Early retirement. State taxes   Your plan can provide for payment of retirement benefits before the normal retirement age. State taxes 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. State taxes Satisfies the service requirement for the early retirement benefit. State taxes Separates from service with a nonforfeitable right to an accrued benefit. State taxes The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. State taxes Required minimum distributions. State taxes   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. State taxes See Required Distributions , under Distributions, later. State taxes Survivor benefits. State taxes   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. State taxes A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. State taxes A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. State taxes   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. State taxes The participant does not choose benefits in the form of a life annuity. State taxes 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. State taxes The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. State taxes Loan secured by benefits. State taxes   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. State taxes Waiver of survivor benefits. State taxes   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. State taxes The plan also must allow the participant to withdraw the waiver. State taxes The spouse's consent must be witnessed by a plan representative or notary public. State taxes Waiver of 30-day waiting period before annuity starting date. State taxes    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. State taxes   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. State taxes Involuntary cash-out of benefits not more than dollar limit. State taxes   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. State taxes   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. State taxes 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. State taxes   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. State taxes   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. State taxes A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. State taxes See Section 402(f) Notice under Distributions, later, for more details. State taxes Consolidation, merger, or transfer of assets or liabilities. State taxes   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. State taxes (if the plan had then terminated). State taxes Benefits must not be assigned or alienated. State taxes   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. State taxes Exception for certain loans. State taxes   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. State taxes A disqualified person is defined later in this chapter under Prohibited Transactions. State taxes Exception for QDRO. State taxes   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. State taxes   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. State taxes 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. State taxes No benefit reduction for social security increases. State taxes   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. State taxes This rule also applies to plans supplementing the benefits provided by other federal or state laws. State taxes Elective deferrals must be limited. State taxes   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. State taxes See Limit on Elective Deferrals later in this chapter. State taxes Top-heavy plan requirements. State taxes   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. State taxes   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. State taxes Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. State taxes   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. State taxes These qualification requirements for top-heavy plans are explained in section 416 and its regulations. State taxes SIMPLE and safe harbor 401(k) plan exception. State taxes   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. State taxes QACAs (discussed later) also are not subject to top-heavy requirements. State taxes Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. State taxes First you adopt a written plan. State taxes Then you invest the plan assets. State taxes You, the employer, are responsible for setting up and maintaining the plan. State taxes If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. State taxes If you have employees, see Participation, under Qualification Rules, earlier. State taxes Set-up deadline. State taxes   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). State taxes Credit for startup costs. State taxes   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. State taxes For more information, see Credit for startup costs under Reminders, earlier. State taxes Adopting a Written Plan You must adopt a written plan. State taxes The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. State taxes Or it can be an individually designed plan. State taxes Written plan requirement. State taxes   To qualify, the plan you set up must be in writing and must be communicated to your employees. State taxes The plan's provisions must be stated in the plan. State taxes It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. State taxes Master or prototype plans. State taxes   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. State taxes Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). State taxes 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. State taxes Under a prototype plan, a separate trust or custodial account is established for each employer. State taxes Plan providers. State taxes   The following organizations generally can provide IRS-approved master or prototype plans. State taxes Banks (including some savings and loan associations and federally insured credit unions). State taxes Trade or professional organizations. State taxes Insurance companies. State taxes Mutual funds. State taxes Individually designed plan. State taxes   If you prefer, you can set up an individually designed plan to meet specific needs. State taxes Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. State taxes You may need professional help for this. State taxes See Rev. State taxes Proc. State taxes 2014-6, 2014-1 I. State taxes R. State taxes B. State taxes 198, available at www. State taxes irs. State taxes gov/irb/2014-1_IRB/ar10. State taxes html, as annually updated, that may help you decide whether to apply for approval. State taxes Internal Revenue Bulletins are available on the IRS website at IRS. State taxes gov They are also available at most IRS offices and at certain libraries. State taxes User fee. State taxes   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. State taxes At least one of them must be a non-highly compensated employee participating in the plan. State taxes The fee does not apply to requests made by the later of the following dates. State taxes The end of the 5th plan year the plan is in effect. State taxes The end of any remedial amendment period for the plan that begins within the first 5 plan years. State taxes The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. State taxes   For more information about whether the user fee applies, see Rev. State taxes Proc. State taxes 2014-8, 2014-1 I. State taxes R. State taxes B. State taxes 242, available at www. State taxes irs. State taxes gov/irb/2014-1_IRB/ar12. State taxes html, as may be annually updated; Notice 2003-49, 2003-32 I. State taxes R. State taxes B. State taxes 294, available at www. State taxes irs. State taxes gov/irb/2003-32_IRB/ar13. State taxes html; and Notice 2011-86, 2011-45 I. State taxes R. State taxes B. State taxes 698, available at www. State taxes irs. State taxes gov/irb/2011-45_IRB/ar11. State taxes html. State taxes Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. State taxes You can establish a trust or custodial account to invest the funds. State taxes You, the trust, or the custodial account can buy an annuity contract from an insurance company. State taxes Life insurance can be included only if it is incidental to the retirement benefits. State taxes You set up a trust by a legal instrument (written document). State taxes You may need professional help to do this. State taxes 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. State taxes 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. State taxes If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. State taxes Other plan requirements. State taxes   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. State taxes 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. State taxes 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. State taxes For information on this funding requirement, see section 412 and its regulations. State taxes Quarterly installments of required contributions. State taxes   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. State taxes If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. State taxes Due dates. State taxes   The due dates for the installments are 15 days after the end of each quarter. State taxes For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). State taxes Installment percentage. State taxes   Each quarterly installment must be 25% of the required annual payment. State taxes Extended period for making contributions. State taxes   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. State taxes Contributions A qualified plan is generally funded by your contributions. State taxes However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. State taxes See Employee Contributions and Elective Deferrals later. State taxes Contributions deadline. State taxes   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. State taxes Self-employed individual. State taxes   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. State taxes Your net earnings must be from your personal services, not from your investments. State taxes 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. State taxes Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. State taxes There are also limits on the amount you can deduct. State taxes See Deduction Limits , later. State taxes Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. State taxes The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. State taxes Defined benefit plan. State taxes   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. State taxes 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. State taxes $205,000 ($210,000 for 2014). State taxes Defined contribution plan. State taxes   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. State taxes 100% of the participant's compensation. State taxes $51,000 ($52,000 for 2014). State taxes   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. State taxes Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. State taxes Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. State taxes 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. State taxes See Regulations sections 1. State taxes 401(k)-2 and 1. State taxes 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). State taxes When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. State taxes But you can apply them to the previous year if all the following requirements are met. State taxes You make them by the due date of your tax return for the previous year (plus extensions). State taxes The plan was established by the end of the previous year. State taxes The plan treats the contributions as though it had received them on the last day of the previous year. State taxes You do either of the following. State taxes You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. State taxes You deduct the contributions on your tax return for the previous year. State taxes A partnership shows contributions for partners on Form 1065. State taxes Employer's promissory note. State taxes   Your promissory note made out to the plan is not a payment that qualifies for the deduction. State taxes Also, issuing this note is a prohibited transaction subject to tax. State taxes See Prohibited Transactions , later. State taxes Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. State taxes The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. State taxes Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. State taxes Defined contribution plans. State taxes   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. State taxes If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. State taxes See Deduction Limit for Self-Employed Individuals , later. State taxes   When figuring the deduction limit, the following rules apply. State taxes Elective deferrals (discussed later) are not subject to the limit. State taxes Compensation includes elective deferrals. State taxes The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). State taxes Defined benefit plans. State taxes   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. State taxes Consequently, an actuary must figure your deduction limit. State taxes    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. State taxes Table 4–1. State taxes 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. State taxes 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. State taxes Compensation is your net earnings from self-employment, defined in chapter 1. State taxes This definition takes into account both the following items. State taxes The deduction for the deductible part of your self-employment tax. State taxes The deduction for contributions on your behalf to the plan. State taxes The deduction for your own contributions and your net earnings depend on each other. State taxes For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. State taxes To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. State taxes Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. State taxes Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. State taxes 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. State taxes Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. State taxes (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. State taxes ) 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. State taxes Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. State taxes For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. State taxes However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. State taxes See Deduction Limit for Self-Employed Individuals, earlier. State taxes The amount you carry over and deduct may be subject to the excise tax discussed next. State taxes Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. State taxes 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. State taxes In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. State taxes Special rule for self-employed individuals. State taxes   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. State taxes 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. State taxes See Minimum Funding Requirement , earlier. State taxes Reporting the tax. State taxes   You must report the tax on your nondeductible contributions on Form 5330. State taxes Form 5330 includes a computation of the tax. State taxes See the separate instructions for completing the form. State taxes 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. State taxes A plan with this type of arrangement is popularly known as a “401(k) plan. State taxes ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. State taxes ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. State taxes In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. State taxes A profit-sharing plan. State taxes A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. State taxes Partnership. State taxes   A partnership can have a 401(k) plan. State taxes Restriction on conditions of participation. State taxes   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. State taxes Matching contributions. State taxes   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. State taxes 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. State taxes Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. State taxes Nonelective contributions. State taxes   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. State taxes These are called nonelective contributions. State taxes Employee compensation limit. State taxes   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. State taxes This limit is $260,000 in 2014. State taxes SIMPLE 401(k) plan. State taxes   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. State taxes A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. State taxes For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. State taxes Distributions. State taxes   Certain rules apply to distributions from 401(k) plans. State taxes See Distributions From 401(k) Plans , later. State taxes Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. State taxes This limit applies without regard to community property laws. State taxes Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. State taxes For 2013 and 2014, the basic limit on elective deferrals is $17,500. State taxes This limit applies to all salary reduction contributions and elective deferrals. State taxes If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. State taxes Catch-up contributions. State taxes   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. State taxes The catch-up contribution limit for 2013 and 2014 is $5,500. State taxes 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). State taxes However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. State taxes The catch-up contribution limit. State taxes The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. State taxes Treatment of contributions. State taxes   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. State taxes Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. State taxes Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. State taxes Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. State taxes Forfeiture. State taxes   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. State taxes Reporting on Form W-2. State taxes   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. State taxes You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. State taxes You must also include them in box 12. State taxes Mark the “Retirement plan” checkbox in box 13. State taxes For more information, see the Form W-2 instructions. State taxes Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. State taxes 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. State taxes These contributions are elective deferrals. State taxes An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). State taxes For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. State taxes Eligible automatic contribution arrangement. State taxes   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. State taxes This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). State taxes There is no required deferral percentage. State taxes Withdrawals. State taxes   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. State taxes The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. State taxes The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. State taxes   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. State taxes The additional 10% tax on early distributions will not apply to the distribution. State taxes Notice requirement. State taxes   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. State taxes 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. State taxes 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. State taxes The notice also must explain how contributions will be invested in the absence of an investment election by the employee. State taxes Qualified automatic contribution arrangement. State taxes    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. State taxes It contains an automatic enrollment feature, and mandatory employer contributions are required. State taxes If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). State taxes Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. State taxes 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. State taxes In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). State taxes If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. State taxes It must be applied uniformly. State taxes It must not exceed 10%. State taxes It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. State taxes It must increase to at least 4% in the following plan year. State taxes It must increase to at least 5% in the following plan year. State taxes It must increase to at least 6% in subsequent plan years. State taxes Matching or nonelective contributions. State taxes   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. State taxes Matching contributions. State taxes You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. State taxes An amount equal to 100% of elective deferrals, up to 1% of compensation. State taxes An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. State taxes Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. State taxes The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. State taxes Nonelective contributions. State taxes 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. State taxes Vesting requirements. State taxes   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. State taxes These contributions are subject to special withdrawal restrictions, discussed later. State taxes Notice requirements. State taxes   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. State taxes The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. State taxes 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. State taxes Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. State taxes 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. State taxes 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. State taxes 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. State taxes The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. State taxes Excess withdrawn by April 15. State taxes   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. State taxes However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. State taxes The distribution is not subject to the additional 10% tax on early distributions. State taxes   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. State taxes   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. State taxes Excess not withdrawn by April 15. State taxes   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. State taxes In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. State taxes 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. State taxes Reporting corrective distributions on Form 1099-R. State taxes   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. State taxes For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. State taxes Tax on excess contributions of highly compensated employees. State taxes   The law provides tests to detect discrimination in a plan. State taxes 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. State taxes Report the tax on Form 5330. State taxes The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. State taxes Also, the ACP test does not apply to these plans if certain additional requirements are met. State taxes   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. State taxes 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. State taxes   See Regulations sections 1. State taxes 401(k)-2 and 1. State taxes 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). State taxes    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. State taxes Safe harbor 401(k) plan. State taxes 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. State taxes For your plan to be a safe harbor plan, you must meet the following conditions. State taxes Matching or nonelective contributions. State taxes You must make matching or nonelective contributions according to one of the following formulas. State taxes Matching contributions. State taxes You must make matching contributions according to the following rules. State taxes You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. State taxes You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. State taxes The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. State taxes Nonelective contributions. State taxes 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. State taxes These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. State taxes Notice requirement. State taxes 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. State taxes 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. State taxes 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. State taxes Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. State taxes 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. State taxes 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. State taxes 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. State taxes 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. State taxes An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. State taxes 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. State taxes Rollover. State taxes   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. State taxes For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. State taxes R. State taxes B. State taxes 872, available at www. State taxes irs. State taxes gov/irb/2010-51_IRB/ar11. State taxes html, and Notice 2013-74. State taxes A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. State taxes Rollover amounts do not apply toward the annual deferral limit. State taxes 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. State taxes See the Form W-2 and 1099-R instructions for detailed information. State taxes Distributions Amounts paid to plan participants from a qualified plan are called distributions. State taxes Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. State taxes Also, certain loans may be treated as distributions. State taxes See Loans Treated as Distributions in Publication 575. State taxes 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). State taxes These distribution rules apply individually to each qualified plan. State taxes You cannot satisfy the requirement for one plan by taking a distribution from another. State taxes The plan must provide that these rules override any inconsistent distribution options previously offered. State taxes Minimum distribution. State taxes   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. State taxes This minimum is figured by dividing the account balance by the applicable life expectancy. State taxes The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. State taxes For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. State taxes Required beginning date. State taxes   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. State taxes   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. State taxes Calendar year in which he or she reaches age 70½. State taxes Calendar year in which he or she retires from employment with the employer maintaining the plan. State taxes 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. State taxes   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. State taxes For more information, see Tax on Excess Accumulation in Publication 575. State taxes Distributions after the starting year. State taxes   The distribution required to be made by April 1 is treated as a distribution for the starting year. State taxes (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. State taxes ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. State taxes 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). State taxes Distributions after participant's death. State taxes   See Publication 575 for the special rules covering distributions made after the death of a participant. State taxes Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. State taxes The employee retires, dies, becomes disabled, or otherwise severs employment. State taxes The plan ends and no other defined contribution plan is established or continued. State taxes 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. State taxes For the rules on hardship distributions, including the limits on them, see Regulations section 1. State taxes 401(k)-1(d). State taxes The employee becomes eligible for a qualified reservist distribution (defined next). State taxes Certain distributions listed above may be subject to the tax on early distributions discussed later. State taxes Qualified reservist distributions. State taxes   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. State taxes All or part of a qualified reservist distribution can be recontributed to an IRA. State taxes The additional 10% tax on early distributions does not apply to a qualified reservist distribution. State taxes 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. State taxes Since most recipients have no cost basis, a distribution is generally fully taxable. State taxes An exception is a distribution that is properly rolled over as discussed under Rollover, next. State taxes The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. State taxes 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. State taxes Note. State taxes 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. State taxes Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. State taxes See Qualified distributions under Qualified Roth Contribution Program, earlier. State taxes Rollover. State taxes   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. State taxes However, it may be subject to withholding as discussed under Withholding requirement, later. State taxes 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. State taxes Eligible rollover distribution. State taxes   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. State taxes A required minimum distribution. State taxes See Required Distributions , earlier. State taxes Any of a series of substantially equal payments made at least once a year over any of the following periods. State taxes The employee's life or life expectancy. State taxes The joint lives or life expectancies of the employee and beneficiary. State taxes A period of 10 years or longer. State taxes A hardship distribution. State taxes The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. State taxes See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. State taxes Loans treated as distributions. State taxes Dividends on employer securities. State taxes The cost of any life insurance coverage provided under a qualified retirement plan. State taxes Similar items designated by the IRS in published guidance. State taxes See, for example, the Instructions for Forms 1099-R and 5498. State taxes Rollover of nontaxable amounts. State taxes   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. State taxes 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. State taxes If the rollover is to an IRA, the transfer can be made by any rollover method. State taxes Note. State taxes A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. State taxes 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). State taxes More information. State taxes   For more information about rollovers, see Rollovers in Pubs. State taxes 575 and 590. State taxes Withholding requirement. State taxes   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. State taxes Exceptions. State taxes   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. State taxes   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. State taxes Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). State taxes However, the participant can choose not to have tax withheld from these distributions. State taxes If the participant does not make this choice, the following withholding rules apply. State taxes For periodic distributions, withholding is based on their treatment as wages. State taxes For nonperiodic distributions, 10% of the taxable part is withheld. State taxes Estimated tax payments. State taxes   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. State taxes For more information, see Withholding Tax and Estimated Tax in Publication 575. State taxes Section 402(f) Notice. State taxes   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. State taxes That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. State taxes That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. State taxes 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. State taxes Certain other rules that may be applicable. State taxes   Notice 2009-68, 2009-39 I. State taxes R. State taxes B. State taxes 423, available at www. State taxes irs. State taxes gov/irb/2009-39_IRB/ar14. State taxes html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. State taxes If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. State taxes Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. State taxes Timing of notice. State taxes   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. State taxes Method of notice. State taxes   The written notice must be provided individually to each distributee of an eligible rollover distribution. State taxes Posting of the notice is not sufficient. State taxes However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. State taxes See Regulations section 1. State taxes 401(a)-21. State taxes Tax on failure to give notice. State taxes   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. State taxes The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. State taxes 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. State taxes This tax applies to the amount received that the employee must include in income. State taxes Exceptions. State taxes   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. State taxes Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. State taxes Made due to the employee having a qualifying disability. State taxes 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. State taxes (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. State taxes ) Made to an employee after separation from service if the separation occurred during o