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Chapter 5--Profit Sharing Plans (Profit Sharing Plans (Standard…
Chapter 5--Profit Sharing Plans
Profit Sharing Plans
Contributions
Limit of 25% of covered compensation deduction
Standard Allocations
Allocate contribution based on a percentage of each employee's covered compensation. Equal percentage to all.
$55,000 Max Contr or for 50+ years $61,000 Max Contr
Social Security Integration
Provides higher allocations to employees whose earnings are great than social security wage base
DC Plan can only use the excess method
$128,400 Base Salary Maximum
Age-Weighted
Stock Bonus Plans
Employee Stock Ownership Plans
401(k) Plans
Roth 401(k)
Can contribute up to $18.5k (+6k if 50 or older), no AGI limits!
No RMD until death
Nonqualified distributions
Contributions tax free
Conversions (tax free)
Earnings are Taxable
401(K)
RMD at 70 1/2
Non qualified Distributions
Distribution tax on a prorated based on basis and earnings
Must pass one of 2 Test--ADP and ACP
1.25% Rule
Both 200%/2% Requirement
Ways to correct if fail both test
Corrective
Return deferrals to HC
Recharacterize
Change deferrals to after-tax
QNEC
Non-elective contribution to NHC
QMC
Contribute higher match % to NHC
Small Business Owners
Alternative to ADP and ACP test
Safe Harbor 401(k)
Outright contribution of at least 3% into each employee with 100% fully vested
Automatic Enrollment Safe Harbor 401(k) plans
Employees are automatically enrolled to make a % deferral unless they opt out of "non-elective contribution
Automatic Deferrals cannot exceed 10% at any time
Thrift Plans
Basically a 401(k) plan that can have both pre-tax contributions or after-tax contributions that would not reduce current year taxes.
A portion of distributions will not be taxable
Age Base Profit Sharing Plans
New Comparability Plan