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401(k) Plans: Know the Rules

August 29, 2022 by Sandra Callanan CPA

401K Money

If you offer a 401(k) plan — in any of its various flavors — to your employees, everyone should know the tax rules that govern them. Although the details can get very technical, you can learn the basics. To start with, many companies find that since a 401(k) plan is much prized by employees, it’s a good idea to not only offer one but also to match contributions. You even get encouragement to do so: Employer contributions are deductible on the employer’s federal income tax return. However, for tax-favored status, a plan must be operated in accordance with applicable rules. To qualify for the tax benefits, your plan must contain language that meets certain requirements of the tax law and be operated in accordance with the plan’s provisions. Employers make matching contributions based on employees’ elective deferrals. There are several types of 401(k) plans available to employers:

  • Traditional 401(k): This allows eligible employees to make pretax elective deferrals through payroll deductions. Any employer contributions can be subject to a vesting schedule. The employer must perform annual tests, known as the Actual Deferral Percentage and the Actual Contribution Percentage tests, to verify that deferred wages and employer matching contributions do not discriminate in favor of highly compensated employees.
  • Safe harbor 401(k): This must provide for employer contributions that are fully vested when made. The safe harbor 401(k) plan is not subject to the complex annual nondiscrimination tests that apply to traditional 401(k) plans.
  • SIMPLE 401(k) plans: This was created so that small businesses could have an effective, cost-efficient way to offer retirement benefits to their employees. A SIMPLE 401(k) plan is not subject to the annual nondiscrimination tests, and the employer is required to make employer contributions that are fully vested.

A plan that allows for vesting may require completion of a specific number of years of service for vesting. For instance, a plan may require an employee to complete two years for a 20% vested interest in employer contributions and additional years of service for increases in the vested percentage. If a traditional plan is top-heavy — has significant participation from owners or officers — the employer may be required to make minimum contributions on behalf of certain employees. The rules relating to the determination of whether a plan is top-heavy are complex. A plan is considered top-heavy when 60% or more of the assets in the plan are owned by key employees:

  • Anyone who owns 5% or more of the company sponsoring the plan.
  • Anyone who owns 1% or more of the company sponsoring the plan and who also earns more than $150,000 annually from the company.
  • Anyone who holds an officer position at the company sponsoring the plan and earns more than $185,000 from the company.

These limits may be adjusted from year to year. If you own more than one business, these rules apply to anyone who has an ownership stake in any of the related companies. The point here is you don’t want most of the plan money at the top of the company belonging to the key company leaders instead of the rest of the employee base. This is also applicable to the family of owners, so that any owners’ spouses and other immediate family members will count as key employees if they participate in the plan. The IRS requires top-heavy tests to make sure that no plan disproportionately benefits the key employees of your company. If top-heavy, you can bring your plan back into balance by making contributions to all regular employees. You also could add a safe harbor to the plan, for instance, offering a 3% automatic contribution regardless of whether employees want to contribute. This ensures that the plan treats all employees equitably, and this will satisfy any contribution requirements of the IRS. You report elective deferrals on the participant’s W-2 Form. Though the amounts aren’t treated as current income for federal tax purposes, they are included as wages subject to Social Security or FICA, Medicare and federal unemployment taxes. This is just a summary of a complex series of rules. Be sure to work closely with qualified professionals to make sure you are in full compliance at all times.

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

Filed Under: Audit Tagged With: 401(k)

Retirement Plans for Medical Offices

July 24, 2022 by Sandra Callanan CPA

doctor and office manager

Planning for your future is paramount, regardless of what career path you’ve chosen. For doctors, it seems like retirement should be an easy path, but many medical professionals are not aware of the plans available to them. Before you make a decision that can impact your and your employees’ lives forever, it is important to understand the details. Here are some things you should know about choosing the right retirement plan for yourself or for your practice as a whole.  

  • W-2 and 1099 employees – what do you have? Options for retirement are partially dependent on the classification of work. When you receive a W-2 from an employer, you are considered a permanent employee. An employer may provide benefits, and your options are more diverse than your contractor counterparts’. An independent contractor, or someone who files taxes with 1099 forms, is considered self-employed, and so will not have the luxury of a retirement package through an employer. But there are plenty of self-funded retirement plans available. It helps to talk with an accountant or financial planner, both for your sake and your employees’.
  • One of the most common retirement funds is a 401(k). Many employers will offer this type of account, and some may even match contributions. For independent contractors, there are Solo 401(k) accounts that can be a great way to save for the future in a more traditional and comfortable way.
  • SEP and SIMPLE IRAs. Another option for doctors managing a staff is to offer a SEP or a SIMPLE IRA. IRAs are individual retirement accounts that are easy to set up and maintain. Offering a SEP, or Simplified Employee Plan, will allow you to make contributions to the staff’s retirement funds. This is particularly good when you’re in an office with high turnover or if only a few of the employees qualify. A SIMPLE IRA, or Savings Incentive Match Plan for Employees IRA, allows a minimum contribution time of two years, compared with SEP’s one. The eligibility is more restrictive overall.
  • Profit sharing. It may seem like profit sharing isn’t appropriate in the realm of a medical office, but it can be a great way to encourage individual savings, growth and participation. This can be tied to individual production or, if you want everyone to be eligible for the program, it can be divided equally among your employees. It can also be calculated based on the employee’s individual pay. This is an affordable way to provide additional money that can be saved or used immediately, and it promotes a shared sense of ownership and increased productivity.

What retirement plans can you create for your practice to ensure your financial future? Careful planning now can help you create a retirement program good for you and your medical staff.  

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

Filed Under: Medical practice Tagged With: 401(k), medical, medical office, medical practice, Retirement, retirement plans

2022 Tax Changes Affecting Retirement Savings

July 10, 2022 by David Moseman CPA

jar of coins and alarm clock

There have been some changes to the tax laws which affect taxpayers who are retired, preparing to retire, and those who are beginning to save up for retirement. Required minimum distributions (RMDs) – Due to higher life expectancies, the IRS has made some changes to the table used to calculate your RMD resulting in a smaller minimum distribution starting in 2022.

Contribution Limits

  • Maximum contribution for retirement plans increased to $20,500 (up from $19,500 in 2021).
  • Individuals born before 1973 can still put in an extra $6,500 as a “catch-up” contribution.
  • In addition, the cap on Simple IRA contributions has gone up to $14,000 ($13,500 in 2021) plus an additional $3,000 for people 50 or older.

Income Ceilings

While the contribution limits for traditional IRAs and Roth IRAs have remained at $6,000, with an additional $1,000 catchup if 50 or older, the income ceilings on Roth IRAs has gone up. Contributions phase out in 2022 at adjusted gross income of $204,000 to $214,000 for married filers (up from $198,000 to $208,000 in 2021) and $129,000 to $144,000 for single filers (up from $125,000 to $140,000 in 2021).

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

Filed Under: Retirement Investments Tagged With: 401(k), Retirement, RMD, Roth IRA, taxes

April 2022 Tax Deadlines

March 8, 2022 by David Moseman CPA

Upset man standing on huge tax letters

April is a busy month for tax filing. Be aware of upcoming deadlines in 2022 to avoid penalties. For guidance on your personal tax situation, consult your CPA.

April 1

First Required Minimum Distribution (RMD) by Individuals Who Turned 72 in 2021 RMD is the annual minimum amount you must withdraw from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 72 (70 ½ if you reach 70 ½ before January 1, 2020). IRS link for more information.  

April 11

Report Tips Earned in March 2022 to Employer Use this form to report tips you receive to your employer. This includes cash tips, tips you receive from other employees, and debit and credit card tips. IRS Form 4070

April 18 Deadlines

File 2021 Tax Returns (Form 1040) and Pay Tax Due (except for residents of Maine and Massachusetts) Submit 2021 Tax Returns or An Extension to File and Pay Tax Owed

  • By law, Washington, D.C., holidays impact tax deadlines for everyone in the same way federal holidays do. This year, Maine and Massachusetts taxpayers have until April 19, 2022, to file their returns. Taxpayers requesting an extension will have until Monday, October 17, 2022, to file. IRS Link for more information. 

File Schedule H and Pay Employment Taxes for Household Employees

  • If you had a household employee, you need to withhold and pay social security and Medicare taxes. IRS Link for more information. 

First Estimated Tax Payment for 2022 is Due

  • Estimated tax is the method used to pay tax on income not subject to withholding (e.g., earnings from self-employment, interest, dividends, rents, alimony, etc.). Form 1040-ES

Make Retirement Account Contributions for 2021

  • This includes 2021 contributions, within limits, to your Individual Retirement Account (IRA), Solo 401(k) Plan or Simplified Employee Pension (SEP) Plan for 2021 by Self-Employed if filing of Form 1040 was not extended.

Withdraw Excess 2021 IRA Contributions to Avoid Penalties (if Form 1040 filing was not extended) Contribute to Health Savings Account (HSA) for 2021

April 19

File 2021 Tax Return (Form 1040) and Pay Tax Due for residents of Maine and Massachusetts

  • If you live in Maine or Massachusetts, the tax filing due date falls on April 19, since April 18 is a holiday (Patriot’s Day) in those states.

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

Filed Under: Individual Taxes Tagged With: 2021 taxes, 401(k), tax deadlines

IRS Announces 2022 Limits for Retirement Plans

November 23, 2021 by Mike Jodon CPA CVA

IRS Retirement Savings and Jar of Money

The IRS has announced the new retirement plan numbers for 2022. Retirement limits for 401(k) and similar plans are up. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500, up from $19,500. IRA limits have changed for certain savers. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2022:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to $68,000 to $78,000, up from $66,000 to $76,000.
  • For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to $109,000 to $129,000, up from $105,000 to $125,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to $204,000 to $214,000, up from $198,000 to $208,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The limit on annual contributions to an IRA remains unchanged at $6,000. Roth IRA limits are changed. The income phase-out range for taxpayers making contributions to a Roth IRA is increased to $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. For married couples filing jointly, the income phase-out range is increased to $204,000 to $214,000, up from $198,000 to $208,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. Savers Credit and SIMPLE are both up. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $68,000 for married couples filing jointly, up from $66,000; $51,000 for heads of household, up from $49,500; and $34,000 for singles and married individuals filing separately, up from $33,000. The amount individuals can contribute to their SIMPLE retirement accounts is increased to $14,000, up from $13,500. Catch-up provisions remain unchanged. The IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $27,000, starting in 2022. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans remains unchanged at $3,000.  

 

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

 

Filed Under: IRS, Retirement Investments Tagged With: 401(k), IRA, Retirement, Roth IRA

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