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After studying this chapter you will be able to: Describe the tax and nontax aspects of employer-provided defined benefit plans from both the employer’s and employee’s perspective; explain and determine the tax consequences associated with employer-provided defined contribution plans, including traditional 401(k) and Roth 401(k) plans; describe the tax implications of deferred compensation from both the employer’s and employee’s perspective;. | Chapter 13 Retirement Savings and Deferred Compensation McGraw-Hill Education Copyright © 2015 McGraw-Hill Education. Learning Objectives Describe the tax and nontax aspects of employer-provided defined benefit plans from both the employer’s and employee’s perspective. Explain and determine the tax consequences associated with employer-provided defined contribution plans, including traditional 401(k) and Roth 401(k) plans. Describe the tax implications of deferred compensation from both the employer’s and employee’s perspective. Learning Objectives 4. Determine the tax consequences of traditional and Roth Individual Retirement Accounts and explain the differences between them. 5. Describe the retirement savings options available to self-employed taxpayers and compute the limitations for deductible contributions to retirement accounts for self-employed taxpayers. 6. Compute the saver’s credit. Employer Provided Plans Qualified Plans Must not discriminate between employees Two main | Chapter 13 Retirement Savings and Deferred Compensation McGraw-Hill Education Copyright © 2015 McGraw-Hill Education. Learning Objectives Describe the tax and nontax aspects of employer-provided defined benefit plans from both the employer’s and employee’s perspective. Explain and determine the tax consequences associated with employer-provided defined contribution plans, including traditional 401(k) and Roth 401(k) plans. Describe the tax implications of deferred compensation from both the employer’s and employee’s perspective. Learning Objectives 4. Determine the tax consequences of traditional and Roth Individual Retirement Accounts and explain the differences between them. 5. Describe the retirement savings options available to self-employed taxpayers and compute the limitations for deductible contributions to retirement accounts for self-employed taxpayers. 6. Compute the saver’s credit. Employer Provided Plans Qualified Plans Must not discriminate between employees Two main types: Defined benefit plan Defined contribution plan Defined Benefit Plans Standard benefits based on fixed formula Average compensation Years of service Maximum benefit in 2014 is $210,000 Employers deduct liability as they contribute to plan Funding requirements based on actuarial assumptions Employer not employee bears investment risk Defined Benefit Plans Vesting schedules 5-year cliff or 7-year graded Distributions from defined benefit plans are taxable to employee when received. Ordinary income Early distributions subject to 10% penalty Defined Contribution Plans Employer specifies up-front contribution on employee’s behalf Employers typically match employee contributions Employees may contribute to plan Employees choose how to invest contributions Alternatives depend on employer’s plan 401(k), 403(b), and 457 Defined Contribution Plans Annual contribution limits for 2014 Employee contributions $17,500 if not 50 years of age by year end $23,000 if at least 50 years old by year
