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Federal Income Tax Ez Form 2011

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Federal Income Tax Ez Form 2011

Federal income tax ez form 2011 4. Federal income tax ez form 2011   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. Federal income tax ez form 2011 Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. Federal income tax ez form 2011 Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. Federal income tax ez form 2011 If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. Federal income tax ez form 2011 You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. Federal income tax ez form 2011 Special rules apply if you rent your condominium to others. Federal income tax ez form 2011 You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. Federal income tax ez form 2011 In addition, you can deduct any dues or assessments paid for maintenance of the common elements. Federal income tax ez form 2011 You cannot deduct special assessments you pay to a condominium management corporation for improvements. Federal income tax ez form 2011 However, you may be able to recover your share of the cost of any improvement by taking depreciation. Federal income tax ez form 2011 Cooperatives If you live in a cooperative, you do not own your apartment. Federal income tax ez form 2011 Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. Federal income tax ez form 2011 If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. Federal income tax ez form 2011 In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. Federal income tax ez form 2011 Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. Federal income tax ez form 2011 Figure your depreciation deduction as follows. Federal income tax ez form 2011 Figure the depreciation for all the depreciable real property owned by the corporation. Federal income tax ez form 2011 (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Federal income tax ez form 2011 ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Federal income tax ez form 2011 Multiply your cost per share by the total number of outstanding shares. Federal income tax ez form 2011 Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Federal income tax ez form 2011 Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Federal income tax ez form 2011 Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Federal income tax ez form 2011 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Federal income tax ez form 2011 Multiply the result of (2) by the percentage you figured in (3). Federal income tax ez form 2011 This is your depreciation on the stock. Federal income tax ez form 2011 Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. Federal income tax ez form 2011 Payments added to capital account. Federal income tax ez form 2011   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. Federal income tax ez form 2011 For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. Federal income tax ez form 2011   Treat as a capital cost the amount you were assessed for capital items. Federal income tax ez form 2011 This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. Federal income tax ez form 2011   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. Federal income tax ez form 2011 Otherwise, figure your share in the following manner. Federal income tax ez form 2011 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Federal income tax ez form 2011 Multiply the corporation's deductible interest by the number you figured in (1). Federal income tax ez form 2011 This is your share of the interest. Federal income tax ez form 2011 Multiply the corporation's deductible taxes by the number you figured in (1). Federal income tax ez form 2011 This is your share of the taxes. Federal income tax ez form 2011 Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Federal income tax ez form 2011 You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Federal income tax ez form 2011 You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Federal income tax ez form 2011 However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Federal income tax ez form 2011 Example. Federal income tax ez form 2011 Your tax year is the calendar year. Federal income tax ez form 2011 You moved from your home in May and started renting it out on June 1. Federal income tax ez form 2011 You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Federal income tax ez form 2011 Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Federal income tax ez form 2011 When figuring depreciation, treat the property as placed in service on June 1. Federal income tax ez form 2011 Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. Federal income tax ez form 2011 Fair market value. Federal income tax ez form 2011   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Federal income tax ez form 2011 Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. Federal income tax ez form 2011 Figuring the basis. Federal income tax ez form 2011   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. Federal income tax ez form 2011 For other increases and decreases to basis, see Adjusted Basis in chapter 2. Federal income tax ez form 2011 Example. Federal income tax ez form 2011 Several years ago you built your home for $140,000 on a lot that cost you $14,000. Federal income tax ez form 2011 Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. Federal income tax ez form 2011 Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. Federal income tax ez form 2011 Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. Federal income tax ez form 2011 The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). Federal income tax ez form 2011 On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. Federal income tax ez form 2011 The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). Federal income tax ez form 2011 Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. Federal income tax ez form 2011 (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Federal income tax ez form 2011 ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Federal income tax ez form 2011 The fair market value of the property on the date you change your apartment to rental use. Federal income tax ez form 2011 This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Federal income tax ez form 2011 The corporation's adjusted basis in the property on that date. Federal income tax ez form 2011 Do not subtract depreciation when figuring the corporation's adjusted basis. Federal income tax ez form 2011 If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). Federal income tax ez form 2011 The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Federal income tax ez form 2011 Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. Federal income tax ez form 2011 Generally, that will be MACRS for any conversion after 1986. Federal income tax ez form 2011 Treat the property as placed in service on the conversion date. Federal income tax ez form 2011 Example. Federal income tax ez form 2011 Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. Federal income tax ez form 2011 Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. Federal income tax ez form 2011 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . Federal income tax ez form 2011 01364). Federal income tax ez form 2011 Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Federal income tax ez form 2011 You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Federal income tax ez form 2011 You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. Federal income tax ez form 2011 There is no change in the types of expenses deductible for the personal-use part of your property. Federal income tax ez form 2011 Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Federal income tax ez form 2011 You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Federal income tax ez form 2011 You do not have to divide the expenses that belong only to the rental part of your property. Federal income tax ez form 2011 For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Federal income tax ez form 2011 If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. Federal income tax ez form 2011 You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Federal income tax ez form 2011 How to divide expenses. Federal income tax ez form 2011   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. Federal income tax ez form 2011 You can use any reasonable method for dividing the expense. Federal income tax ez form 2011 It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Federal income tax ez form 2011 The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. Federal income tax ez form 2011 Example. Federal income tax ez form 2011 You rent a room in your house. Federal income tax ez form 2011 The room is 12 × 15 feet, or 180 square feet. Federal income tax ez form 2011 Your entire house has 1,800 square feet of floor space. Federal income tax ez form 2011 You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. Federal income tax ez form 2011 If your heating bill for the year for the entire house was $600, $60 ($600 × . Federal income tax ez form 2011 10) is a rental expense. Federal income tax ez form 2011 The balance, $540, is a personal expense that you cannot deduct. Federal income tax ez form 2011 Duplex. Federal income tax ez form 2011   A common situation is the duplex where you live in one unit and rent out the other. Federal income tax ez form 2011 Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. Federal income tax ez form 2011 Example. Federal income tax ez form 2011 You own a duplex and live in one half, renting the other half. Federal income tax ez form 2011 Both units are approximately the same size. Federal income tax ez form 2011 Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. Federal income tax ez form 2011 You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). Federal income tax ez form 2011 Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Federal income tax ez form 2011 You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Federal income tax ez form 2011 Where to report. Federal income tax ez form 2011   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. Federal income tax ez form 2011 For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Federal income tax ez form 2011   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. Federal income tax ez form 2011 You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Federal income tax ez form 2011 Presumption of profit. Federal income tax ez form 2011   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. Federal income tax ez form 2011 Postponing decision. Federal income tax ez form 2011   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. Federal income tax ez form 2011 You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. Federal income tax ez form 2011 You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Federal income tax ez form 2011 More information. Federal income tax ez form 2011   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Federal income tax ez form 2011 Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. Federal income tax ez form 2011 Instead of selling the house she had been living in, she decided to change it to rental property. Federal income tax ez form 2011 Eileen selected a tenant and started renting the house on February 1. Federal income tax ez form 2011 Eileen charges $750 a month for rent and collects it herself. Federal income tax ez form 2011 Eileen also received a $750 security deposit from her tenant. Federal income tax ez form 2011 Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. Federal income tax ez form 2011 Her rental expenses for the year are as follows. Federal income tax ez form 2011   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. Federal income tax ez form 2011 She can deduct eleven-twelfths of these expenses as rental expenses. Federal income tax ez form 2011 She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. Federal income tax ez form 2011 She cannot deduct the balance of the fire insurance because it is a personal expense. Federal income tax ez form 2011 Eileen bought this house in 1984 for $35,000. Federal income tax ez form 2011 Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. Federal income tax ez form 2011 Before changing it to rental property, Eileen added several improvements to the house. Federal income tax ez form 2011 She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. Federal income tax ez form 2011 Of this amount, $35,000 was for the land and $117,000 was for the house. Federal income tax ez form 2011 Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. Federal income tax ez form 2011 As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. Federal income tax ez form 2011 She chooses the GDS recovery period of 27. Federal income tax ez form 2011 5 years. Federal income tax ez form 2011 She uses Table 2-2d to find her depreciation percentage. Federal income tax ez form 2011 Since she placed the property in service in February, the percentage is 3. Federal income tax ez form 2011 182%. Federal income tax ez form 2011 On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. Federal income tax ez form 2011 The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. Federal income tax ez form 2011 She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. Federal income tax ez form 2011 On May 1, Eileen paid $4,000 to have a furnace installed in the house. Federal income tax ez form 2011 The furnace is residential rental property. Federal income tax ez form 2011 Because she placed the property in service in May, the percentage from Table 2-2d is 2. Federal income tax ez form 2011 273%. Federal income tax ez form 2011 Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . Federal income tax ez form 2011 03182) $1,241   Dishwasher ($425 × . Federal income tax ez form 2011 20) 85   Furnace ($4,000 × . Federal income tax ez form 2011 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. Federal income tax ez form 2011 She enters her income, expenses, and depreciation for the house in the column for Property A. Federal income tax ez form 2011 Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. Federal income tax ez form 2011 See the Instructions for Form 4562 for more information on preparing the form. Federal income tax ez form 2011 Prev  Up  Next   Home   More Online Publications
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The Federal Income Tax Ez Form 2011

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