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Reprinted from the “Orange County Lawyer,” March 2004 - page 4 / 6

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TAX CREDITS

Expenses for the establishment or maintenance of a qualified retirement plan have always been deductible. For taxable years commencing January 1, 2002, actual tax credits for plan expenses of up to $500 per year for three years will be available. In order to be eligible for this tax credit the plan must be established after 2001, include at least one NHCE and have no more than 100 employees with compensation in excess of $5,000 each.

USER FEES

User or submission fees are required for all plans or amendments that are submitted for IRS approval. Requests for IRS determination letters made after 2001 will not require User Fees provided the plan has 100 or fewer employees and at least one NHCE.

IRA ROLLOVERS

Originally, IRA transfers or rollovers to qualified retirement plans were permitted only in the case of “conduit” IRA’s, that is IRA accounts that were from another qualified plan including any growth thereon, provided said IRA’s were not commingled with “standard” IRA funds. Starting in 2002, “standard” IRA’s could be transferred or rolled over to a qualified plan. What is not clear at this time is whether the “conduit” and “standard” IRA’s can be merged or if they must be segregated. In the case of a Defined Benefit Plan they must be segregated.

GUILD AGGREGATION

While a number of CPA’s, attorneys, and actuaries have been of the opinion that plan benefits of “loan out” corporations had to be aggregated with the benefits of the Guild Plans to which they belong to for purposes of IRC Section 415, this has never been an issue in IRS audits.

This situation has been defused with the elimination of Section 415(e) of the IRC as of January 1, 2000, which negated the offsetting of Defined Benefit and Defined Contribution Plans against one another. In 2002, multi-employer plans (Guild Plans) will not have to be aggregated with single employer or other multi-employer plans for purposes of the percentage of compensation limits.

PLAN AMENDMENTS

The benefit/contribution features described above are not automatic. In order to avail yourself of these provisions, a plan amendment is required.

AUDITS AND PROHIBITED TRANSACTIONS

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