Table of Contents
Future developments. The IRS has created a page on IRS.gov for information about Publication 560, at www.irs.gov/pub560. Information about any future developments affecting Publication 560 (such as legislation enacted after we release it) will be posted on that page.
In-plan Roth rollovers expanded. Beginning in 2013, a 401(k) plan can permit a participant to rollover an amount from his or her regular (pre-tax) elective deferral account into a designated Roth account in the same plan, regardless of whether the participant is eligible for a distribution from the regular account. Section 402A(c)(4) was amended by the American Taxpayer Relief Act of 2012 by adding a new subparagraph, “(E) Special Rule for Certain Transfers,” at the end.
Elective deferral limit increased for 2012 and 2013. The limit on elective deferrals, other than catch-up contributions, increases to $17,000 for 2012. This limit increases to $17,500 for 2013. These limits apply for participants in SARSEPs, 401(k) plans (excluding SIMPLE plans), section 403(b) plans and section 457(b) plans.
Defined contribution limit increased for 2012 and 2013. The limit on contributions, other than catch-up contributions, for a participant in a defined contribution plan increases to $50,000 for 2012. This limit increases to $51,000 for 2013.
SIMPLE plan salary reduction contributions remains the same for 2012 but increases for 2013. The limit on salary reduction contributions remains at $11,500 for 2012. This limit increases to $12,000 for 2013.
Catch-up contribution limit remains the same for 2012 and 2013. A plan can permit participants who are age 50 or over at the end of the calendar year to make catch-up contributions in addition to elective deferrals and SIMPLE plan salary reduction contributions. The catch-up contribution limitation for defined contribution plans other than SIMPLE plans is $5,500 for 2012 and remains $5,500 for 2013. The catch-up contribution limitation for SIMPLE plans is $2,500 for 2012 and remains $2,500 for 2013.The catch-up contributions a participant can make for a year cannot exceed the lesser of the following amounts.
The catch-up contribution limit.
The excess of the participant's compensation over the elective deferrals that are not catch-up contributions.
See “Catch-up contributions” under Contribution Limits and Limit on Elective Deferrals in chapters 3 and 4, respectively, for more information.
All section references are to the Internal Revenue Code, unless otherwise stated.
In-plan Roth rollovers. Section 402A(c)(4) provides for a distribution from an individual's account in a 401(k) plan, other than from a designated
Roth account, that is rolled over to the individual's designated Roth account in the same plan. An in-plan Roth rollover is
not treated as a distribution for most purposes. Section 402A(c)(4) was added by the Small Business Jobs Act of 2010 and applies
to distributions made after September 27, 2010. For additional guidance on in-plan Roth rollovers, see Notice 2010-84, 2010-51
I.R.B. 872, available at
Credit for startup costs. You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP, SIMPLE, or qualified plan. The credit equals 50% of the cost to set up and administer the plan and educate employees about the plan, up to a maximum of $500 per year for each of the first 3 years of the plan. You can choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective.You must have had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year. At least one participant must be a non-highly compensated employee. The employees generally cannot be substantially the same employees for whom contributions were made or benefits accrued under a plan of any of the following employers in the 3-tax-year period immediately before the first year to which the credit applies.
A member of a controlled group that includes you.
A predecessor of (1) or (2).
The credit is part of the general business credit, which can be carried back or forward to other tax years if it cannot be used in the current year. However, the part of the general business credit attributable to the small employer pension plan startup cost credit cannot be carried back to a tax year beginning before January 1, 2002. You cannot deduct the part of the startup costs equal to the credit claimed for a tax year, but you can choose not to claim the allowable credit for a tax year. To take the credit, use Form 8881, Credit for Small Employer Pension Plan Startup Costs.
Retirement savings contributions credit. Retirement plan participants (including self-employed individuals) who make contributions to their plan may qualify for the retirement savings contribution credit. The maximum contribution eligible for the credit is $2,000. To take the credit, use Form 8880, Credit for Qualified Retirement Savings Contributions. For more information on who is eligible for the credit, retirement plan contributions eligible for the credit and how to figure the credit, see Form 8880 and its instructions or go to the IRS website and search Retirement Topics-Retirement Savings Contributions Credit (Saver's Credit).
Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
This publication discusses retirement plans you can set up and maintain for yourself and your employees. In this publication, “you” refers to the employer. See chapter 1 for the definition of the term employer and the definitions of other terms used in this publication. This publication covers the following types of retirement plans.
SEP (simplified employee pension) plans.
SIMPLE (savings incentive match plan for employees) plans.
Qualified plans (also called H.R. 10 plans or Keogh plans when covering self-employed individuals), including 401(k) plans.
SEP, SIMPLE, and qualified plans offer you and your employees a tax-favored way to save for retirement. You can deduct contributions you make to the plan for your employees. If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. You can also deduct trustees' fees if contributions to the plan do not cover them. Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan.
Under a 401(k) plan, employees can have you contribute limited amounts of their before-tax (after-tax, in the case of a qualified Roth contribution program) pay to the plan. These amounts (and the earnings on them) are generally tax free until your employees receive distributions from the plan or, in the case of a qualified distribution from a designated Roth account, completely tax free.
What type of plan to set up.
How to set up a plan.
How much you can contribute to a plan.
How much of your contribution is deductible.
How to treat certain distributions.
How to report information about the plan to the IRS and your employees.
Basic features of SEP, SIMPLE, and qualified plans. The key rules for SEP, SIMPLE, and qualified plans are outlined in Table 1.
Table 1. Key Retirement Plan Rules for 2012
|Last Date for Contribution||Maximum Contribution||Maximum Deduction||When To Set Up Plan|
|SEP||Due date of employer's return (including extensions).||Smaller of $50,000 or 25%1 of participant's compensation.2||25%1 of all participants' compensation.2||Any time up to the due date of employer's return (including extensions).|
|Salary reduction contributions: 30 days after the end of the month for which the contributions are to be made.4
Matching or nonelective contributions: Due date of employer's return (including extensions).
|Employee contribution: Salary reduction contribution up to $11,500, $14,000 if age 50 or over.
Either dollar-for-dollar matching contributions, up to 3% of employee's compensation,3or fixed nonelective contributions of 2% of compensation.2
|Same as maximum contribution.||Any time between 1/1 and 10/1 of the calendar year.
For a new employer coming into existence after 10/1, as soon as administratively feasible.
|Qualified Plan: Defined Contribution Plan||
Elective deferral: Due date of employer's return (including extensions).4
Money Purchase or Profit-Sharing: Due date of employer's return (including extensions).
Employee contribution: Elective deferral up to $17,000, $22,500 if age 50 or over.
Money Purchase: Smaller of $50,000 or 100%1 of participant's compensation.2
Profit-Sharing: Smaller of $50,000 or 100%1 of participant's compensation.2
25%1 of all participants' compensation2, plus amount of elective deferrals made.
|By the end of the tax year.|
|Qualified Plan: Defined Benefit Plan||Contributions generally must be paid in quarterly installments, due 15 days after the end of each quarter. See Minimum Funding Requirement in chapter 4.||Amount needed to provide an annual benefit no larger than the smaller of $200,000 or 100% of the participant's average compensation for his or her highest 3 consecutive calendar years.||Based on actuarial assumptions and computations.||By the end of the tax year.|
|1Net earnings from self-employment must take the contribution into account. See Deduction Limit for Self-Employed Individuals
2Compensation is generally limited to $250,000 in 2012.
3Under a SIMPLE 401(k) plan, compensation is generally limited to $250,000 in 2012
4Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions and elective deferrals.
The comprehensive IRA rules an employee needs to know. These rules are covered in Publication 590, Individual Retirement Arrangements (IRAs).
The comprehensive rules that apply to distributions from retirement plans. These rules are covered in Publication 575, Pension and Annuity Income.
The comprehensive rules that apply to section 403(b) plans. These rules are covered in Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans).
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