Publication 560 - Introductory Material


Future Developments

For the latest information about developments related to Publication 560, such as legislation enacted after we release it, go to www.irs.gov/pub560.

What's New

Compensation limit increased for 2013 and 2014. For 2013 the maximum compensation used for figuring contributions and benefits increases to $255,000. This limit increases to $260,000 for 2014.

Elective deferral limit for 2013 and 2014. The limit on elective deferrals, other than catch-up contributions, increases to $17,500 for 2013 and remains at $17,500 for 2014. 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 2013 and 2014. The limit on contributions, other than catch-up contributions, for a participant in a defined contribution plan increases to $51,000 for 2013. This limit increases to $52,000 for 2014.

SIMPLE plan salary reduction contribution limit for 2013 and 2014. The limit on salary reduction contributions, other than catch-up contributions, increases to $12,000 for 2013 and remains at $12,000 for 2014.

Catch-up contribution limit remains unchanged for 2013 and 2014. 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 remains unchanged at $5,500 for 2013 and 2014. The catch-up contribution limitation for SIMPLE plans remains unchanged at $2,500 for 2013 and 2014.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.

Reminders

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  
www.irs.gov/irb/2010-51_IRB/ar11.html.

In-plan Roth rollovers expanded. Beginning in 2013, a plan with designated Roth accounts can permit a participant to roll over amounts into a designated Roth account from his or her other accounts in the same plan, regardless of whether the participant is eligible for a distribution from the other accounts. Section 402A(c)(4) was amended by the American Taxpayer Relief Act of 2012. For more information, see Notice 2013-74, 2013-52 I.R.B. 819, available at www.irs.gov/irb/2013-52_IRB/ar11.html.

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.

  1. You.

  2. A member of a controlled group that includes you.

  3. 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.

Introduction

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 this publication covers.   This publication contains the information you need to understand the following topics.
  • 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.

SEP plans.   SEPs provide a simplified method for you to make contributions to a retirement plan for yourself and your employees. Instead of setting up a profit-sharing or money purchase plan with a trust, you can adopt a SEP agreement and make contributions directly to a traditional individual retirement account or a traditional individual retirement annuity (SEP-IRA) set up for yourself and each eligible employee.

SIMPLE plans.   Generally, if you had 100 or fewer employees who received at least $5,000 in compensation last year, you can set up a SIMPLE plan. Under a SIMPLE plan, employees can choose to make salary reduction contributions rather than receiving these amounts as part of their regular pay. In addition, you will contribute matching or nonelective contributions. The two types of SIMPLE plans are the SIMPLE IRA plan and the SIMPLE 401(k) plan.

Qualified plans.   The qualified plan rules are more complex than the SEP plan and SIMPLE plan rules. However, there are advantages to qualified plans, such as increased flexibility in designing plans and increased contribution and deduction limits in some cases.

Table 1. Key Retirement Plan Rules for 2013

Type 
of  
Plan
Last Date for Contribution Maximum Contribution Maximum Deduction When To Set Up Plan
SEP Due date of employer's return (including extensions). Smaller of $51,000 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).
SIMPLE 
IRA 
and 
SIMPLE 
401(k)
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 $12,000, $14,500 if age 50 or over. 
 
Employer contribution:  
Either dollar-for-dollar matching contributions, up to 3% of employee's compensation,3 or 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 
 
 
Employer contribution: 
Money Purchase or Profit-Sharing: Due date of employer's return (including extensions).
 
Employee contribution: Elective deferral up to $17,500, $23,000 if age 50 or over. 
 
Employer contribution: 
Money Purchase: Smaller of $51,000 or 100%1 of participant's compensation.2 
 
Profit-Sharing: Smaller of $51,000 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 $205,000 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 in chapters 2 and 4
2Compensation is generally limited to $255,000 in 2013. 
3Under a SIMPLE 401(k) plan, compensation is generally limited to $255,000 in 2013. 
4Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions and elective deferrals.

What this publication does not cover.   Although the purpose of this publication is to provide general information about retirement plans you can set up for your employees, it does not contain all the rules and exceptions that apply to these plans. You may also need professional help and guidance.

  Also, this publication does not cover all the rules that may be of interest to employees. For example, it does not cover the following topics.
  • 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).

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

  You can write to us at the following address:

Internal Revenue Service 
Tax Forms and Publications Division 
1111 Constitution Ave. NW, IR-6526 
Washington, DC 20224

  We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

  You can send your comments from www.irs.gov/formspubs. Click on “More Information” and then on “Give us feedback.

  Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.   Visit www.irs.gov/formspubs to download forms  
and publications, call 1-800-TAX-FORM  
(1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received.

Internal Revenue Service 
1201 N. Mitsubishi Motorway 
Bloomington, IL 61705-6613

Tax questions.   If you have a tax question, check the information available on IRS.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

Note.

Forms filed electronically with the Department of Labor are not available on the IRS website. Instead, see www.efast.dol.gov.


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