Retirement Planning and Employee Benefits for Financial PlannersSIMPLEsEstablishing a SIMPLESIMPLE IRAsWithdrawals and Distributions403(b) Plans – Tax Sheltered AnnuitiesERISAEligibilityContributions to 403(b) Plans15-Year Catch-Up ContributionsInvestment Choices/LoansDistributions from 403(b) Plans457 PlansEligible EntitiesSlide 15Contributions to 457 Plans3-Year Catch-UpDistributions from 457 Plans1Retirement Planning and Employee Benefits for Financial PlannersChapter 10: SIMPLES, 403(b) Plans, and 457 Plans2© 2007 ME™ - Your Money Education Resource™SIMPLEsSavings Incentive Match Plans for Employees (SIMPLEs).Retirement plans for small employers.Easy to establish.Funds are deposited in employee’s IRAImmediate 100% vesting all contributionsEasy to maintain.Similar tax advantages to qualified plans.Employee elective deferral contributions.SIMPLE IRA or 401(k)3© 2007 ME™ - Your Money Education Resource™Establishing a SIMPLECan only be established by employers < 100 employeesMust be a calendar year plan.To establish complete and provide participants with either Form 5304-SIMPLE or Form 5305-SIMPLE.Provide participants with 60-day period to elect deferral.Employer cannot maintain a qualified plan.The participant is 100% vested in all contributions to the SIMPLE.4© 2007 ME™ - Your Money Education Resource™SIMPLE IRAsEligibility: earned $5,000 in either of last two years and expect to this yearEmployee Elective DeferralsMaximum $12,000 (2014), plus $2,500 (2014) as catch-up contribution for those age 50 and over.Not limited to 25% of compensationEmployer ContributionsEmployer Matching ContributionsDollar-for-dollar match up to 3% of compensation or2% of compensation contribution to each eligible employee.5© 2007 ME™ - Your Money Education Resource™Withdrawals and DistributionsOrdinary income to recipient.May be rolled over to an IRA or other qualified plan.May be subject to early withdrawal penalties.25%, rather than 10%, penalty if the withdrawal is completed within the first two years of the employee’s participation in the plan.Subject to IRA early withdrawal exclusions.6© 2007 ME™ - Your Money Education Resource™403(b) Plans – Tax Sheltered AnnuitiesRetirement plan for the following:Public schools or educational organizations, andTax-exempt Organizations under IRC Section 501(c)(3).7© 2007 ME™ - Your Money Education Resource™ERISAIf pension plan of non-profit, ERISA appliesExcluded from ERISA if only minimal employer involvementChurch and government 403(b) plans not subject to ERISAPlan must meet the following tests:Nondiscrimination testMatching contributions must satisfy ACP testPlan must offer the following distribution options:Preretirement Joint and Survivor AnnuityQualified Joint and Survivor (QJSA)8© 2007 ME™ - Your Money Education Resource™EligibilityEligibilityPlan may require employees to meet the general eligibility requirements of:Age 21 and one year of service.VestingThe participant is 100% vested in all contributions to a 403(b) plan.9© 2007 ME™ - Your Money Education Resource™Contributions to 403(b) PlansEmployee elective deferrals:Tax deductibleSubject to payroll taxesLimited to $17,500 per year for 2014, plus $5,500 for 2014 for catch-up (50 and over)Combined limit with other CODA plansNon-elective contributions: not a salary deferralContributions by the employerCan also make after-tax contributions10© 2007 ME™ - Your Money Education Resource™15-Year Catch-Up ContributionsPermits up to an additional $15,000 (maximum $3,000 additional per year) of contributions to the 403(b).Participant must have completed 15 years of service with the employer.For 2014, maximum deferral contribution would be $26,000.$17,500 – Employee Deferral$5,500 – Age 50 and over catch-up$3,000 – 15-Year Catch-Up11© 2007 ME™ - Your Money Education Resource™Investment Choices/LoansFunds within a 403(b) account can only be invested in either of the following:Insurance Annuity ContractsMutual FundsLoansOnly permissible from ERISA plansSubject to same rules as loans from 401(k) plans12© 2007 ME™ - Your Money Education Resource™Distributions from 403(b) PlansDistributions related to employee deferral contributions can only be paid after the following:59½DeathSeparation from ServiceDisabilityHardship (as defined in Chapter 5)Distributions from nonelective contributions are not restricted.Distributions are taxed as ordinary income, and potentially subject to a 10% penalty.RMD rules apply to 403(b) plans13© 2007 ME™ - Your Money Education Resource™457 PlansNonqualified Deferred Compensation PlanEligible tax-exempt entitiesEligible governmental entitiesEmployee elective tax-deferred savings14© 2007 ME™ - Your Money Education Resource™Eligible EntitiesTrade AssociationsReligious Organizations (Not CHURCHES)Private HospitalsRural Electric CooperativesFarmers’ CooperativesPrivate SchoolsLabor UnionsCharitable OrganizationsNon government 457 plans: subject to claims of employer’s creditorsStatesPolitical Subdivisions of a StateState Agencies15© 2007 ME™ - Your Money Education Resource™EligibilityEligibilityMust agree prior to start of month to defer incomeNo years of service requirementVesting3-year cliff vesting for employer contributions16© 2007 ME™ - Your Money Education Resource™Contributions to 457 PlansEmployee elective deferrals:Tax deductibleSubject to payroll taxesLimited to $17,500 per year for 2014, plus $5,500 for 2014 for catch-up (50 and over) if government planLimited to earned incomeBut can also contribute $17,500 to 403(b) or 401(k) during same year Employer matching contributions count towards $17,500 per year limit17© 2007 ME™ - Your Money Education Resource™3-Year Catch-UpThree years prior to normal retirement age an employee may defer an additional $17,500 for 2014 to the 457 plan.Limited to prior unused deferral amounts.Maximum contribution equals $35,000 for 2014.$17,500 for 2014 deferral contribution + $17,500 for 2014 catch-up contribution.Cannot use 50 and over catch-up contribution when using the 3-year catch-up.18© 2007 ME™ - Your Money Education