Academic journal article Journal of Accountancy

Are Your Qualified Retirement Plans Up to Date?

Academic journal article Journal of Accountancy

Are Your Qualified Retirement Plans Up to Date?

Article excerpt

Various changes in tax law have had a positive impact on how much Americans can save in qualified retirement plans. By reviewing the different types of plan designs before the end of 2006, CPAs and their clients may be better able to capitalize on some of these changes. Here are some points to consider:

[] Elective 401(k) deferrals. The maximum elective contribution per employee in the 2006 calendar year is $15,000, even if the plans are from different employers.

[] Catch-up contributions. Employees who will reach age 50 or older by the end of the plan year can add a catch-up contribution of $5,000 to their 401(k) elective deferrals.

[] Annual additions limit for defined contribution plans. Annual additions--including employer contributions, employee contributions and forfeitures--are limited to the lesser of 100% of compensation or $44,000. The catch-up contribution is not included in this limit.

[] Annual compensation limit. The eligible compensation limit in 2006 was $220,000. If services are rendered by a husband and wife, consider balancing their compensation (as long as it is reasonable and customary) to increase their overall retirement contribution.

[] Highly compensated employee limit. Employees earning $100,000 or more may be excluded from the plan. This may work well in a professional organization, which could cover non-highly-compensated employees along with the partners, leaving out highly-compensated managers or supervisors.

[] Maximum annual retirement benefit. The annual Limit for defined benefits is $175,000 for retirement ages 62-65.

[] Tax credit for new plans. A three-year tax credit of 50% of the first $1,000 of start-up costs ($500 maximum) is available to employers with fewer than 100 employees that cover at least one non-highly-compensated employee. Eligible expenses include fees to establish the plan, administrative fees and costs incurred to educate employees about the plan. …

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