In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") discusses the Retirement Savings Contributions Credit ( sometimes called the Saver's Credit). What the IRS says is here.
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In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") discusses the Retirement Savings Contributions Credit ( sometimes called the Saver's Credit). What the IRS says is here.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") discusses the various types of retirement plan contributions which may be made. Here is what the IRS says:
Types of Retirement Plan Contributions
If you participate in an employer-sponsored retirement plan, you may be able to make different types of plan contributions from your wages:
• Pre-tax elective deferrals aren't included in your gross income in the year that you make them. For example, if you asked your employer to contribute $2,000 from your $30,000 salary to the plan, you'd only include $28,000 in income. You must include these contributions, plus any earnings, in your income when you later withdraw them.
• Designated Roth contributions are elective deferrals that are included in your gross income in the year you make them, but not when you withdraw them from the plan. If you meet certain conditions, you don't have to include any earnings on these contributions in your income when you withdraw them.
• After-tax employee contributions are also included in your gross income in the year you make them. You don't include these contributions in income when you withdraw them, but you must include any earnings. Unlike elective deferrals, there isn't an annual dollar limit on the amount of these contributions you can make, but if you're a highly compensated employee, your after-tax employee contributions may be limited by what other employees contribute.
• Catch-up contributions are additional elective deferrals you may be able to contribute to the plan if you're age 50 or older by the end of the calendar year. You can make these contributions as pre-tax elective deferrals or designated Roth contributions (if your plan allows them) or any combination of the two.
Elective deferral limits:
• $17,500 to 401(k) (other than a SIMPLE 401(k)), 403(b) and 457(b) plans (plus
$5,500 catch-up contributions)
• $12,000 to SIMPLE plans (plus $2,500 catch-up contributions)
• $18,000 to 401(k) (other than a SIMPLE 401(k)), 403(b) and 457(b) plans (plus $6,000 catch-up contributions)
• $12,500 to SIMPLE plans (plus $3,000 catch-up contributions)
Ask your employer or check your summary plan description to find out which types of contributions you can make to your workplace retirement plan.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") provides guidance on correcting a Roth contribution failure. The IRS says the following:
Many employers have added a Roth feature to their 401(k), 403(b) or governmental 457(b) plans. This feature allows employees to choose to designate some or all of their elective contributions as Roth contributions. Employees must make this designation before the deferral is withheld from their salary. A Roth contribution differs from a pre-tax elective contribution in that the Roth contribution amount is included in gross income.
A common mistake we've encountered in the operation of a Roth feature is that the employer doesn't follow the employee's election as to the type of elective deferral. The employee elects a Roth contribution, but the employer treats it as a pre-tax deferral.
Fixing the mistake
To fix the mistake of not following an employee's election to designate the contribution as a Roth contribution you must transfer the deferrals, adjusted for earnings, from the pre-tax account to the Roth account. There are two options on how to report this transfer:
1. The employer issues a corrected Form W-2 and the employee must file an amended Form 1040 for the year of the failure.
2. The employer includes the amount transferred from the pre-tax to the Roth account in the employee's compensation in the year it's transferred. If the employer elects, it may compensate the employee for the additional amount he or she owes in income tax for that year . This must likewise be included in the employee's income for that year.
The employee elects pre-tax deferral, but the employer treats it as a Roth contribution.
Fixing the mistake
The employer can transfer the erroneously deposited deferrals, adjusted for earnings, from the Roth account to the pre-tax account. The employer would file a corrected W-2 and the employee would file an amended 1040 for the year of the failure.
Correction programs available
The plan sponsor can use the Voluntary Correction Program (VCP) (if the error issignificant and it meets the other conditions of VC). The error can be self-corrected, without IRS approval, if the mistake is insignificant or, if significant, if the plan sponsor corrects the mistake within two years. A plan sponsor can use self-correction only if the plan has practices and procedures in place designed to promote overall tax law compliance. If the plan is under IRS examination, then mistakes are generally corrected under a closing agreement using the Audit Closing Agreement Program.
Making sure it doesn't happen again
Establish procedures that ensure that the participants' elections are correctly implemented. This could include educating those responsible for processing the deferral elections on how to interpret and implement the information on the election forms. In addition, periodically check the process of withholding, classifying and depositing salary deferrals so that you can timely fix errors and adjust internal controls, as needed.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service ("IRS") discuss the one-rollover-per year rule that applies to IRAs. Here is what the IRS says:
Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (IRS Announcements 2014-15 and 2014-32). The limit will apply by aggregating all of an individual's IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.
• Trustee-to-trustee transfers between IRAs are not limited
• Rollovers from traditional to Roth IRAs ("conversions") are not limited
Transition rule ignores some 2014 distributions
IRA distributions rolled over to another (or the same) IRA in 2014 will not prevent a 2015 distribution from being rolled over provided the 2015 distribution is from a different IRA involved in the 2014 rollover.
Example: If you have three traditional IRAs, IRA-1, IRA-2 and IRA-3, and in 2014 you took a distribution from IRA-1 and rolled it into IRA-2, you could not roll over a distribution from IRA-1 or IRA-2 within a year of the 2014 distribution but you could roll over a distribution from IRA-3. This transition rule applies only to 2014 distributions and only if different IRAs are involved. So if you took a distribution from IRA-1 on January 1, 2015, and rolled it over into IRA-2 the same day, you could not roll over any other 2015 IRA distribution (unless it's a conversion).
Background of the one-per-year rule
Under the basic rollover rule, you don't have to include in your gross income any amount distributed to you from an IRA if you deposit the amount into another eligible plan (including an IRA) within 60 days (Internal Revenue Code Section 408(d)(3)). Internal Revenue Code Section 408(d)(3)(B) limits taxpayers to one IRA-to-IRA rollover in any 12-month period. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), published in 1981, and IRS Publication, Individual Retirement Arrangements (IRAs) interpreted this limitation as applying on an IRA-by-IRA basis, meaning a rollover from one IRA to another would not affect a rollover involving other IRAs of the same individual. However, the Tax Court held in 2014 that you can't make a non-taxable rollover from one IRA to another if you have already made a rollover from any of your IRAs in the preceding 1-year period (Bobrow v. Commissioner, T.C. Memo. 2014-21).
Tax consequences of the one-rollover-per-year limit
Beginning in 2015, if you receive a distribution from an IRA of previously untaxed amounts:
• you must include the amounts in gross income if you made an IRA-to-IRA rollover in the preceding 12 months (unless the transition rule above applies), and
• you may be subject to the 10% early withdrawal tax on the amounts you include in gross income.
Additionally, if you pay the distributed amounts into another (or the same) IRA, the amounts may be:
• treated as an excess contribution, and
• taxed at 6% per year as long as they remain in the IRA.
Direct transfers of IRA money are not limited
This change won't affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn't a rollover (Revenue Ruling 78-406). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service ("IRS") provides some year-end reminders. Here is what the IRS said:
IRA Year- End Reminders
Whether you are still working or retired, you should periodically review your IRAs. Here are few things to remember.
If you're still working, review the 2014 IRA contribution and deduction limits to make sure you are taking full advantage of the opportunity to save for your retirement. You can make 2014 IRA contributions until April 15, 2015.
If you exceed the 2014 IRA contribution limit, you may withdraw excess contributions from your account by the due date of your tax return (including extensions). Otherwise, you must pay a 6% tax each year on the excess amounts left in your account.
Required minimum distributions
If you are age 70½ or older this year, you must take a 2014 required minimum distribution by December 31, 2014 (by April 1, 2015, if you turned 70½ in 2014). You can calculate the amount of your IRA required minimum distribution by using IRS Worksheets. You must calculate the required minimum distribution separately for each IRA that you own other than any Roth IRAs, but you can withdraw the total amount from one or more of your non-Roth IRAs. Remember that you face a 50% excise tax on any required minimum distribution that you fail to take on time.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") reminds us that retirement plan needs regular care to keep it operating properly. What the IRS says is here.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") reminds us that it is not too late to set up a retirement plan for 2014. What the IRS says is here.
In Employee Plans News, Issue 2014-22, December 9, 2014, the Internal Revenue Service (the "IRS") provides guidance on maintaining retirement plan records. Here is what the IRS said.
As an employer sponsoring a retirement plan, you are required by law to keep your books and records available for review by the IRS. Having these records will also facilitate answering questions when determining participants' benefits. Employee plans covers the qualification of pension, annuity, profit sharing and stock bonus plans, IRAs, SEPs, SIMPLEs, tax sheltered annuities, and 457 plans.
Which plan records should you keep in case of an IRS audit?
As a plan sponsor you should keep the plan and trust document, recent amendments, determination and approval letters, related annuity contracts and collective bargaining agreements. The records you keep are based on the type of plan you sponsor.
• SEP Plans - Keep Form 5305-SEP or 5305A-SEP as your plan document
• SIMPLE IRA plans - Keep Form 5304-SIMPLE or 5305-SIMPLE as your plan document
• Profit sharing, 401(k) or defined benefit plans - Keep your plan document, adoption agreement (if you have one) and all plan amendments
• trust records such as investment statements, balance sheets, and income statements
• participant records such as census data, account balances, contributions and earnings, loan documents and information, compensation data and participant statements and notices
How long should you keep plan records?
You should keep retirement plan records until the trust or IRA has paid all benefits and enough time has passed that the plan won't be audited. Retirement plans are designed to be long-term programs for participants to accumulate and receive benefits at retirement. As a result, plan records may cover many years of transactions. The Internal Revenue Code and Income Tax Regulations as well as the Employee Retirement Income Security Act of 1974, as amended (ERISA) require plan sponsors to keep records of these transactions because they may become material in administering pension law.
If you're audited
You are required to provide complete, accurate records in either paper or electronic format if the IRS requests them during an audit.
Revenue Procedure 98-25 - lists the basic requirements for recordkeeping when a taxpayer maintains their records in an automatic data processing system.
In Employee Plans News, Issue 2014-22, December 9, 2014, the Internal Revenue Service ("IRS") reminded taxpayers born before July 1, 1944, that they generally must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by Dec. 31. Here is what the IRS said.
Known as required minimum distributions (RMDs), these payments normally must be made by the end of 2014. But a special rule allows first-year recipients of these payments, those who reached age 70½ during 2014, to wait until as late as April 1, 2015 to receive their first RMDs. This means that those born after June 30, 1943 and before July 1, 1944 are eligible for this special rule. Though payments made to these taxpayers in early 2015 can be counted toward their 2014 RMD, they are still taxable in 2015.
The required distribution rules apply to owners of traditional IRAs but not Roth IRAs while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.
An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount on Form 5498 in Box 12b. For a 2014 RMD, this amount was on the 2013 Form 5498 normally issued to the owner during January 2014.
The special April 1 deadline only applies to the RMD for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, for example, a taxpayer who turned 70½ in 2013 (born after June 30, 1942 and before July 1, 1943) and received the first required payment on April 1, 2014 must still receive the second RMD by Dec. 31, 2014.
The RMD for 2014 is based on the taxpayer's life expectancy on Dec. 31, 2014, and their account balance on Dec. 31, 2013. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Use the online worksheets on IRS.gov or find worksheets and life expectancy tables to make this computation in the Appendices to Publication 590.
For most taxpayers, the RMD is based on Table III (Uniform Lifetime) in the IRS publication on IRAs. So for a taxpayer who turned 72 in 2014, the required distribution would be based on a life expectancy of 25.6 years. A separate table, Table II, applies to a taxpayer whose spouse is more than 10 years younger and is the taxpayer's only beneficiary.
Though the RMD rules are mandatory for all owners of traditional IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulations in Publication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.Find more information on RMDs, including answers to frequently asked questions, on IRS.gov.
Employee Benefits-IRS Issues 2014 Cumulative List of Changes in Plan Qualification Requirements/Extends Deadlines For Upcoming Filings
The IRS has issued Notice 2014-77. The Notice contains the 2014 Cumulative List of Changes in Plan Qualification Requirements (2014 Cumulative List) described in section 4 of Rev. Proc. 2007-44. The 2014 Cumulative List is to be used by plan sponsors and practitioners submitting determination letter applications for plans during the period beginning February 1, 2015 and ending January 31, 2016.
The Notices says that plans using this Cumulative List will primarily be single employer individually designed defined contribution plans and single employer individually designed defined benefit plans that are in Cycle E. Generally an individually designed plan is in Cycle E if the last digit of the employer identification number of the plan sponsor is 5 or 0, or if the plan is a § 414(d) governmental plan (including governmental multiemployer or governmental multiple employer plans) for which an election has been made by the plan sponsor to treat Cycle E as the second remedial amendment cycle for the plan.
To help filers for the current filing cycles, in Announcement 2014-41, the IRS extends from February 2, 2015 to June 30, 2015, the deadline for submitting on-cycle applications for opinion and advisory letters for pre-approved defined benefit plans for the plans' second six-year remedial amendment cycle. This announcement also provides a two day extension, from Saturday, January 31, 2015, to Monday, February 2, 2015, for Cycle D on-cycle submissions (primarily individually designed plans including multiemployer plans).
Anyone up for a rollover? In Employee Plans News, Issue 2014-19, November 24, 2014, the IRS make available a one-page chart which, as of November 17, 2014, shows which rollovers from and to retirement plans and IRAs are permitted. Take a look.
In Revenue Ruling 2014-32, the Internal Revenue Service (the "IRS") provides guidance on:
(1) whether certain employer-provided transportation benefits, provided through electronic media, are excluded from gross income under Code sections 132(a)(5) and 132(f) (and from wages for employment tax purposes) (concluding that in some cases "yes", in other cases "no");
(2) whether, under certain facts, qualified transportation fringe benefits include delivery charges incurred by an employee in acquiring transit passes (concluding "yes" under those facts); and
(3) whether, under certain facts, qualified transportation fringe benefits can be provided through a bona fide reimbursement arrangement (concluding "no", beginning after 2015).
In Notice 2014-74 (the "Notice"), the Internal Revenue Service (the "IRS") amends the two safe harbor explanations in Notice 2009-68. Those explanations can be used to satisfy the requirement under Code section 402(f) that certain information be provided to recipients of eligible rollover distributions. These amendments relate to the allocation of pre-tax and after-tax amounts, distributions in the form of in-plan Roth rollovers, and certain other clarifications to the two safe harbor explanations. The Notice also includes two new, complete model notices which can be used to satisfy section 402(f), and which incorporate the amendments. The Notice indicates that the amendments to the safe harbor explanations, and the included model notices, may be used for plans that apply the guidance in section III of Notice 2014-54, with respect to the allocation of pretax and after-tax amounts.
Employee Benefits-Deadline For Health Plans to Submit Enrollment Counts To HHS is Extended to December 5 (From November 15)
Per an Alert Message (effective 11/14/2014) from CMS: Attention ACA Transitional Reinsurance Reporting Entities: CMS has received requests for an extension of the deadline for contributing entities to submit their 2014 enrollment counts for the transitional reinsurance program contributions under 45 CFR 153.405(b). The deadline has now been extended until 11:59 p.m. on December 5, 2014. The January 15, 2015 and November 15, 2015 payment deadlines remain the same. If you have any questions regarding the ACA Transitional Reinsurance Program Annual Enrollment Contributions Submission form, please contact the Health and Human Services (HHS) Centers for Medicare & Medicaid Services (CMS) directly at 877-292-6978, or e-mail firstname.lastname@example.org
In IRS Announcement 2014-32, the Internal Revenue Service ("IRS") follows up
Announcement 2014-15, by addressing the application to Individual Retirement Accounts and Individual Retirement Annuities (collectively, "IRAs") of the one-rollover-per-year limitation of § 408(d)(3)(B) of the Internal Revenue Code. Here is what the IRS said.
Background. Section 408(d)(3)(A)(i) provides generally that any amount distributed from an IRA will not be included in the gross income of the distributee, to the extent the amount is paid into an IRA for the benefit of the distributee by no later than 60 days after he or she receives the distribution (often referred to as a "60-day rollover"). Section 408(d)(3)(B) provides that an individual is permitted to make only one nontaxable 60-day rollover between IRAs in any 1-year period. As discussed in Announcement 2014-15, Proposed Regulation § 1.408-4(b)(4)(i) and IRS Publication 590 provided that the one-rollover-per-year limitation was applied on an IRA-by-IRA basis.
However, the Tax Court in Bobrow v. Commisioner held that the limitation applies on an aggregate basis, meaning that an individual could not make more than one nontaxable 60-day rollover within each 1-year period, even if the rollovers involved different IRAs. In Announcement 2014-15, the IRS indicated that it anticipated following the interpretation of § 408(d)(3)(B) in Bobrow, and accordingly that it would (and subsequently did) withdraw the proposed regulation and revise Publication 590 to as needed to follow that interpretation, but that it would not apply the Bobrow interpretation of § 408(d)(3)(B) before 2015.
New Concerns. This Announcement is intended to address certain concerns that have arisen since the release of Announcement 2014-15. The IRS will apply the Bobrow interpretation of § 408(d)(3)(B) for distributions that occur on or after January 1, 2015. This means that an individual receiving an IRA distribution on or after January 1, 2015, cannot roll over any portion of the distribution into an IRA, if the individual has received a distribution from any IRA in the preceding 1- year period that was rolled over into an IRA. However, as a transition rule for distributions in 2015, a distribution occurring in 2014 that was rolled over is disregarded for purposes of determining whether a 2015 distribution can be rolled over under § 408(d)(3)(A)(i), provided that the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution.
Roth IRAs. A rollover from a traditional IRA to a Roth IRA (a "conversion") is not subject to the one-rollover-per-year limitation, and such a rollover is disregarded in applying the one-rollover-per-year limitation to other rollovers. However, a rollover between an individual's Roth IRAs would preclude a separate rollover within the 1-year period between the individual's traditional IRAs, and vice versa.
Qualified Plans/Trustee-Trustee Transfers. The one-rollover-per-year limitation also does not apply to a rollover to or from a qualified plan (and such rollover is disregarded in applying the one-rollover-per-year limitation to other rollovers), nor does it apply to trustee-to-trustee transfers. IRA trustees are encouraged to offer IRA owners requesting a distribution for rollover the option of a trustee-to-trustee transfer from one IRA to another IRA. IRA trustees can accomplish a trustee-to-trustee transfer by transferring amounts directly from one IRA to another or by providing the IRA owner with a check made payable to the receiving IRA trustee.