ED SLOTT S IRA ADVISOR

Transcription

1 ED SLOTT S IRA ADVISOR 2016 Ed Slott's IRA Advisor, Inc. March 2016 Tax & Estate Planning For Your Retirement Savings Contributing to Multiple Retirement Plans Can my client contribute to more than one type of retirement plan/ account? And if so, how much can I put into each? These are questions advisors face on a regular basis that often have no easy answer. Thankfully, now they do. We would like to thank Denise Appleby, CISP, CRC, CRPS, CRSP, APA, Appleby Retirement Consulting for providing us with the chart used in this issue. We have collaborated with Denise over many years to come up with what we feel is the definitive chart for helping you to answer the questions outlined above. This information is critical for many clients. When clients have access to more than one retirement plan, knowing how much they can contribute to all their plans has an impact on what they ultimately have saved for their retirement. When they are not aware of the limits, they may under contribute or, conversely, may over contribute. Neither of those options is a good one. Catch-up s, which vary by plan, are not included in the chart. We have also included an overview of the controlled group rules on page 7. CAN T MAKE OUR LIVE SUMMER WORKSHOP? Ed Slott and Company s Instant IRA Success Many clients do not realize that if they own and operate more than one company or business, that all of their businesses may need to be covered by the same plan. Not complying with this rule can have serious consequences for all of the employees in all of the companies, as well as for the employers. When errors are made in operating any of these plans, the business owner should consult with a professional or look on the IRS website for the correct procedures to fix the mistake. What seems like the logical action often is not the right way to correct an error and may compound problems with the plan. The IRS has self-correction procedures for minor problems, as well as other procedures for which a fee may be required to effect a correction. You can find correction procedure information as well as other employer plan information here: Plans One other note; all employer plans must have adopted a plan agreement. This is true when the owner is the only employee, as well as when there are other employees covered by the plan. BRING IRA EXPERTISE STRAIGHT TO YOU SEE PAGE 8 FOR MORE DETAILS WHAT S INSIDE? Contributing to Multiple Retirement Plans - Page 1 Traditional IRA - Page 2 Roth IRA - Page 2 - Page 3 Simple IRA or Simple 401(k) - Page 3 Profit Sharing and/or Money Purchase Pension Plan - Page 4 401(k) Plan/Roth 401(k) - Page 4 - Page 5 - Page 5 Traditional IRA Contribution Deduction Eligibility - Page 6 Roth IRA Contribution Eligibility - Page 6 Additional Notes About the Charts - Page 6 Three Types of Controlled Groups - Page 7 To Order Call: (800) ED SLOTT S IRA ADVISOR March

2 Multiple Plans Contribution Limits Quick Reference Guide Created by Denise Appleby Use this guide to determine the maximum possible s when an individual owns or participates in two retirement plans Notes For IRA, 401(k), 403(b), 457(b) and SIMPLE plans, individuals age 50 and over may make catch-up s in addition to regular amounts in this table. The catch-up limit for 2016 is $1,000 for Traditional and Roth IRAs, $6,000 for 401(k), 403(b) and governmental 457(b) plans, and $3,000 for SIMPLE IRAs and SIMPLE 401(k)s. The annual addition limit of $53,000 for qualified retirement plans (such as profit sharing and money purchase pension plans) includes salary deferral s of to 401(k)/Roth 401(k) and 403(b)/Roth 403(b) accounts plus employer s and employee voluntary after-tax (nondeductible) s. See the last page for more important notes. The table looks at: The Effect That the Plans in the Vertical/Column Have on the Plans in the Horizontal/Row Traditional and/or Roth IRA SIMPLE IRA/SIMPLE 401(k) Profit Sharing or Money 401(k)Plan/Roth 401(k) Traditional IRA Total s to all Traditional and/or Roth IRAs for the year cannot exceed $5,500 IRAs & receive up to $53,000 as SEP s IRAs & make salary deferral s of up to $12,500 plus receive employer s in the SIMPLE IRAs & receive up to $53,000 as profit-sharing and/or money purchase s IRAs & receive up to $53,000 in s in the 401(k) IRAs & receive up to $53,000 in s in the 403(b) Roth IRA Total s to all Traditional and/or Roth IRAs for the year cannot exceed $5,500 IRAs & receive up to $53,000 as SEP s IRAs & make salary deferral s of up to $12,500 plus receive employer s in the SIMPLE IRAs & receive up to $53,000 as profit-sharing and/or money purchase s IRAs & receive up to $53,000 in s in the 401(k) IRAs & receive up to $53,000 in s in the 403(b) No effect on IRA s IRAs & receive up to in the 457(b) may be salary deferral or a combination of salary IRAs & receive up to in the 457(b) may be salary deferral or a combination of salary 2 ED SLOTT S IRA ADVISOR March 2016 To Order Call: (800)

3 Traditional and/or Roth IRA No effect on SEP s Individual may receive up to $53,000 as SEP s & contribute up to $5,500 to all Traditional/Roth IRAs receive up to $53,000 in each SEP - total $106,000 covered under the same plan SIMPLE IRA or SIMPLE 401(k) No effect on SIMPLE s Individual may make salary deferral s of up to $12,500 plus receive employer s in the SIMPLE & contribute up to $5,500 to all Traditional/Roth IRAs make salary deferral s of up to $12,500 plus receive employer s in the SIMPLE & receive up to $53,000 in the SEP If employers are related or affiliated, all employees of both businesses must be covered under the same plan, SIMPLE or SEP, not both SIMPLE IRA/SIMPLE 401(k) receive up to $53,000 in the SEP & make salary deferral s of up to $12,500 plus receive employer s in the SIMPLE If employers are related or affiliated, all employees of both businesses must be covered under the same plan, SEP or SIMPLE, not both make salary deferral s of up to $12,500 plus receive employer s in both SIMPLE accounts. However, total salary deferrals for both SIMPLEs cannot exceed If employers are related or affiliated, all employees of both businesses must be covered under the same SIMPLE and s are limited to the amounts for one SIMPLE Profit Sharing or Money receive up to $53,000 in the & receive up to $53,000 in the profit sharing and/or money purchase plan - total $106,000 make salary deferral s of up to $12,500 plus receive employer s in the SIMPLE & receive up to $53,000 in the profit sharing and/or money purchase plan If employers are related or affiliated, employees of both businesses must be, SIMPLE or profit sharing and/or money purchase, not both 401(k)Plan/Roth 401(k) receive up to $53,000 in the SEP & receive up to $53,000 in the 401(k) - total $106,000 make salary deferral s of up to $12,500 plus receive employer s in the SIMPLE & receive up to $53,000 in the 401(k) If employers are related or affiliated, employees of both businesses must be covered under the same plans, SIMPLE or 401(k), not both business that sponsors the SEP, the individual may receive up to $53,000 in the SEP & receive up to $53,000 in the 403(b) total $106,000 If the individual who owns the 403(b) is the owner of the business that sponsors the SEP, total s to both accounts cannot exceed $53,000 business that sponsors the SIMPLE, the individual may make salary deferral s of up to $12,500 plus receive employer s in the SIMPLE & receive up to $53,000 in the 403(b) If the individual who owns the 403(b) is also the owner of the business that sponsors the SIMPLE, the total s to both plans cannot exceed $53,000 if the SIMPLE is a SIMPLE 401(k) plan SIMPLE IRAs are not subject to the $53,000 limit No effect on SEP s Individual may receive up to $53,000 in the SEP & receive up to in the 457(b) may be salary deferral or a combination of salary No effect on SIMPLE s Individual may make salary deferral s of up to $12,500 plus receive employer s in the SIMPLE & receive up to in the 457(b) Individual may defer $12,500 to SIMPLE & contribute to the 457(b) total $30,500 To Order Call: (800) ED SLOTT S IRA ADVISOR March

4 Traditional and/or Roth IRA Profit Sharing and/or Money No effect on profit sharing or money purchase s Individual may receive up to $53,000 as profit sharing and/or money purchase s & contribute up to $5,500 to all Traditional/Roth IRAs 401(k) Plan/Roth 401(k) No effect on 401(k) s Individual may receive up to $53,000 in s to the 401(k) & contribute up to $5,500 to all Traditional/Roth IRAs receive up to $53,000 in the profit sharing and/or money purchase plan & receive up to $53,000 in the SEP - total $106,000 receive up to $53,000 in the 401(k) & receive up to $53,000 in the SEP - total $106,000 SIMPLE IRA/SIMPLE 401(k) receive up to $53,000 in the profit sharing and/or money purchase plan & make salary deferral s of up to $12,500 plus receive employer s to the SIMPLE, profit sharing and/or money purchase or SIMPLE, not both receive up to $53,000 in the 401(k) & make salary deferral s of up to $12,500 plus receive employer s to the SIMPLE $53,000 for 401(k) includes salary deferral s of plus employer s,401(k) or SIMPLE, not both Profit Sharing or Money receive up to $53,000 in each profit sharing and/or money purchase pension plan - total $106,000 receive up to $53,000 in the 401(k) & receive up to $53,000 in the profit sharing and/or money purchase plan - total $106, (k)Plan/Roth 401(k) receive up to $53,000 in the profit sharing plan and/or money purchase plan & receive up to $53,000 in the 401(k) - total $106,000 receive up to $53,000 in both 401(k) plan(s), up to $106,000 total If the employers are related or affiliated, total s cannot exceed $53,000 and employees of both businesses must be covered under the same plan business that sponsors the profit sharing and/or money purchase plan, the individual may receive up to $53,000 in the profit sharing and/or money purchase plan & receive up to $53,000 in the 403(b) total $106,000 If the 403(b) owner is the owner of the business that sponsors the profit sharing and/or money purchase plan, the total s for the individual to both plans cannot exceed $53,000 business that sponsors the 401(k), the individual may receive up to $53,000 in the 401(k) & receive up to $53,000 in the 403(b) - total $106,000 If the individual who owns the business that sponsors the 401(k) is also the owner of the 403(b), the total s to both plans cannot exceed $53,000 No effect on profit sharing and/or money purchase s No effect on 401(k) s Total salary deferral can be up to $36,000 ( in each plan) 4 ED SLOTT S IRA ADVISOR March 2016 To Order Call: (800)

5 Traditional and/or Roth IRA No effect on 403(b) s Individual may receive up to $53,000 in s in the 403(b) & contribute up to $5,500 to all Traditional/Roth IRAs Individual may receive up to in the 457(b) & contribute up to $5,500 to all Traditional/Roth IRAs may be salary deferral or a combination of salary If the individual who owns the 403(b) is not the owner of the business that sponsors the SEP, the individual may receive up to $53,000 in the 403(b) & receive up to $53,000 in the SEP - total $106,000 If the individual who owns the 403(b) is the owner of the business that sponsors the SEP, total s to both accounts cannot exceed $53,000 Individual may receive up to in the 457(b) & receive up to $53,000 in the SEP may be salary deferral or a combination of salary SIMPLE IRA/SIMPLE 401(k) Profit Sharing or Money 401(k)Plan/Roth 401(k) business that sponsors the SIMPLE, the individual may receive up to $53,000 in the 403(b) & make salary deferral s of up to $12,500 plus receive employer s in the SIMPLE If the individual who owns the 403(b) is also the owner of the business that sponsors the SIMPLE, the total s to both plans cannot exceed $53,000 if the SIMPLE is a SIMPLE 401(k) plan SIMPLE IRAs are not subject to the $53,000 limit business that sponsors the profit sharing and/or money purchase plan, the individual may receive up to $53,000 in the 403(b) & receive up to $53,000 in the profit sharing and/or money purchase plan total $106,000 If the 403(b) owner is the owner of the business that sponsors the profit sharing and/or money purchase plan, the total s for the individual to both plans cannot exceed $53,000 business that sponsors the 401(k) the individual may receive up to $53,000 in the 403(b) & receive up to $53,000 in the 401(k) - total $106,000 If the individual who owns the 403(b) is also the owner of the business that sponsors the 401(k), the total s to both plans cannot exceed $53,000 Individual may receive up to in the 457(b) & make salary deferral s of up to $12,500 plus receive employer s in the SIMPLE Individual may contribute to the 457(b) & defer $12,500 to SIMPLE total $30,500 Individual may receive up to in the 457(b) & receive up to $53,000 in the profit sharing and/or money purchase plan Individual may receive up to in the 457(b) & receive up to $53,000 in the 401(k) Total salary deferral can be up to $36,000 ( in each plan) Total s to both 403(b) plans cannot exceed $53,000 Total salary deferral s to both 403(b) plans cannot exceed Individual may receive up to in the 457(b) & receive up to $53,000 in the 403(b) Total salary deferral can be up to $36,000 ( to each plan) No effect on 403(b) s Individual may receive up to $53,000 in the 403(b) & receive up to in the 457(b) Total salary deferral can be up to $36,000 ( in each plan) Individual may receive s of up to may be salary deferral or a combination of salary To Order Call: (800) ED SLOTT S IRA ADVISOR March

6 Traditional IRA Contribution Deduction Eligibility If an individual is considered to be covered (an active participant) under an employer sponsored retirement plan, that individual s eligibility to claim a deduction for a to a traditional IRA depends on her tax filing status Tax Filing Status 2016 MAGI Allowed Deduction Single $61,000 or less 100% $61,000 - $71,000 Partial $71,000 or more None Married filing jointly or $98,000 or less 100% a qualifying widower, and active $98,000- $118,000 Partial $118,000 or more None Married filing jointly. $184,000 or less 100% Not active, but spouse is active $184,000 - $194,000 Partial $194,000 or more None Married filing separately Less than $10,000 Partial $10,000 or more None Roth IRA Contribution Eligibility Tax Filing Status 2016 MAGI Allowed Contribution Single $117,000 or less 100% $117,000 - $132,000 Partial $132,000 or more None Married filing jointly $184,000 or less 100% $184,000 - $194,000 Partial $194,000 or more None Married filing separately Less than $10,000 Partial $10,000 or more None Additional Notes About the Charts Regular s to traditional IRAs are not permitted beginning the year an IRA owner reaches age 70½. $5,500 + catch-up can be split between Roth and Traditional IRAs or contributed to either account. For employer-sponsored plans, status as the employer is determined by whether the employer is part of a controlled group of companies or an affiliated service group. The percentage of ownership in, or control over, the businesses determines controlled group status. Service and ownership relationships can also result in an affiliate service group status (See chart on page 7). The maximum annual addition for each employee under a 401(k), profit sharing or money purchase pension plan for each employer is the lesser of 100% of compensation or $53,000. Only one catch-up limit applies to employer plans, regardless of the number of plans in which an individual participates - whether for the same employer or different employers. This table does not take into consideration additional s (other than the age 50 catch-up s) which a participant may be eligible to make to a 403(b) plan. 401(k) plans include Individual-k/Solo-k/Uni-k/SBO-k plans and other brand name 401(k) plans. Salary deferral s to 401(k)s, 403(b)s and governmental 457(b) plans include designated Roth account (DRA) s - commonly referred to as Roth 401(k), Roth 403(b), Roth 457(b) s. Employer s to SIMPLEs can be either a matching of up to 3% of compensation or a 2% non-elective. 457(b) refers to eligible governmental 457(b) plans. 6 ED SLOTT S IRA ADVISOR March 2016 To Order Call: (800)

7 1. Parent-subsidiary Three Types of Controlled Groups A parent-subsidiary controlled group exists when one or more chains of corporations are connected through stock ownership with a common parent corporation; and:- 80% of the stock of each corporation, (except the common parent) is owned by one or more corporations in the group; and Parent corporation must own 80% of at least one other corporation. 2. Brother-sister A brother-sister controlled group is a group of two or more corporations, in which five or fewer common owners own directly or indirectly a controlling interest of each group and have effective control. 3. Combined. A combination of: parent-subsidiary and brother-sister A combined group consists of three or more organizations that are organized as follows: Each organization is a member of either a parent-subsidiary or brother-sister group; and At least one corporation is the common parent of a parent-subsidiary; and is also a member of a brothersister group. Source: IRS Lesson on Controlled and Affiliated Service Groups By Larry Lawson (Cincinnati); Reviewer: Jeff Nelson (Cincinnati) Companies that are part of a controlled group of companies or an affiliated service group might need to be treated as one employer for certain purposes, including the maximum limit of $53,000. A legal professional should be consulted to determine whether a business is part of a controlled group of companies and/or part of an affiliated service group. Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA tools and resources for financial and tax professionals. She has over 17 years of experience in the retirement plans field, which includes providing training and technical consultation to financial and professionals. Denise is also CEO of a free consumer website containing a wealth of information about retirement accounts rules and regulations. Denise has co-authored the following three books on retirement accounts: - Roth IRA Answer Book, Published by Aspen Publishers. - Quick Reference to IRAs, Published by Aspen Publishers. - Adviser's Guide to Retirement Plans for Small Businesses, Published by AICPA. Denise Appleby CISP, CRC, CRPS, CRSP, APA Denise also wrote and published Appleby's IRA Quick Reference Guides Booklet: A compilation of IRA Guides with features, benefits, rules and tips. She is a frequent speaker at seminars attended by financial and tax professionals. Denise has made appearances on CNBC's Business News, Fox Business Network and numerous radio shows. She has also been quoted in the Wall Street Journal, Investor's Business Daily, CBS, Market Watch's Retirement Weekly and other financial publications. To Order Call: (800) ED SLOTT S IRA ADVISOR March

8 ED SLOTT S IRA Advisor Editor - in - Chief Ed Slott, CPA Contributing Writers Beverly DeVeny Jeffrey Levine Sarah Brenner Disclaimer and Warning to Readers: Ed Slott s IRA Advisor has been carefully researched to provide accurate and current data to financial advisors, taxpayers, and others who seek and use the information contained in this newsletter. Readers are cautioned, however, that this newsletter is not intended to provide tax, legal, accounting, financial, or professional advice. If such services are required, then readers are advised to seek the aid of competent professional advisors. This news letter contains timely information about complicated tax topics that may eventually be changed, outdated, or rendered incorrect by new legislation or official rulings. The editor, authors, and publisher shall not have liability or responsibility to any person or entity with respect to any loss or damage caused or alleged to be caused, directly or indirectly, by the information contained in this newsletter. Ed Slott s IRA Advisor is published monthly (12 issues a year) for $125 by: Ed Slott s IRA Advisor, Inc. 100 Merrick Road, Suite 200E Rockville Centre, NY support@irahelp.com ORDER ONLINE AT OR CALL All rights reserved ISSN X Ed Slott's IRA Advisor, Inc. 100 Merrick Road, Suite 200E Rockville Centre, NY No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means without the prior written permission of Ed Slott, CPA. If you can t hop on a plane, bring the nation s leading IRA experts straight to you. Ed Slott and Company has packaged the latest tax rules, IRA strategies and your business-building action plan into 8 interactive, online training sessions. Each online training session includes: 90 minutes of IRA expertise Q&A with America s IRA Experts A downloadable course manual provided for each class REGISTER TODAY! AND COMPANY, LLC America s IRA Experts CAN T MAKE OUR LIVE WORKSHOP? BRING IRA EXPERTISE STRAIGHT TO YOU Ed Slott and Company s Instant IRA Success Visit for complete 2016 class schedule To register or learn more: Call: Copyright 2016 by Ed Slott and Company, LLC Visit: info@irahelp.com Copyright 2016 by Ed Slott and Company, LLC 8 ED SLOTT S IRA ADVISOR March 2016 To Order Call: (800)