Topics of discussion in class this week consisted of installation, administration, and termination of qualified plans. We also discussed IRAs, SEPs, and began discussing non-qualified plans.
Installation of qualified plans is a rigorous and planning-centric task. The first step in creating a qualified plan requires employers to establish business objectives for the plan such as establishing a competitive employment environment and to retain tax-deferred savings. Next, employers must take an employee census, take into consideration cash flow requirements and resources, and administration costs. Once a plan is established, many testing requirements must be met and maintained. A plan may be terminated only to maximize benefits for key employees, to accommodate a law change, if contributions can no longer be met, or if the benefits provided are not adequte.
IRAs and SEPs are not qualified plans, and therefore do not have to keep up with the many vesting requirements. Distributions from traditional IRAs are taxed, and contributions are tax deductible. Contributions to Roth IRAs, on the other hand, are nondeductible, but qualified distributions taken are income tax free. SEP IRAs' consist of employer money and have greater funding limits than traditional IRAs. Individuals must have "earned income" in order to be eligible.
Installation of qualified plans is a rigorous and planning-centric task. The first step in creating a qualified plan requires employers to establish business objectives for the plan such as establishing a competitive employment environment and to retain tax-deferred savings. Next, employers must take an employee census, take into consideration cash flow requirements and resources, and administration costs. Once a plan is established, many testing requirements must be met and maintained. A plan may be terminated only to maximize benefits for key employees, to accommodate a law change, if contributions can no longer be met, or if the benefits provided are not adequte.
IRAs and SEPs are not qualified plans, and therefore do not have to keep up with the many vesting requirements. Distributions from traditional IRAs are taxed, and contributions are tax deductible. Contributions to Roth IRAs, on the other hand, are nondeductible, but qualified distributions taken are income tax free. SEP IRAs' consist of employer money and have greater funding limits than traditional IRAs. Individuals must have "earned income" in order to be eligible.