2016 Retirement Quick Reference Guide
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SIMPLE IRA SIMPLE 401(K) PROFIT SHARING & MONEY PURCHASE 401(K) DEFINED BENEFIT • Earnings grow tax-deferred. • Contributions may be deduct- ible for employer. • No annual IRS filing require- ments for employer. • Some funding responsibility with employees. • Deferred amount can reduce employee’s taxable income. • Earnings grow tax-deferred. • Contributions may be deductible for employer. • No discrimination testing. • Not subject to top-heavy rules. • Some funding responsibility with employees. • Deferred amount can reduce employee’s taxable income. • Earnings grow tax-deferred. • Flexibility in plan design. • Contributions may be deductible for employer. • Vesting schedules. • Profit Sharing: Discretionary contributions. • Money Purchase: Mandatory contributions. • Earnings grow tax-deferred. • Flexibility in plan design. • Contributions may be deductible for employer. • Funding responsibility can lie with employees. • Deferred amount can reduce employee’s taxable income. • Earnings grow tax-deferred. • Contributions may be deductible for employer. • Contribution levels may be substantially higher than other types of retirement plans. • Favors older, more highly compensated employees. • Vesting schedules. Employers (a) with no more than 100 employees earning $5,000 or more from the Employer during the preceding year, and (b) who do not maintain another retirement plan (subject to certain limited exceptions). Employers with no more than 100 employees who do not maintain another retirement plan (subject to certain limited exceptions). Corporations, Subchapter S, Self-Employed, Sole Proprietor- ships, Partnerships, Non-Profits. Corporations, Subchapter S, Self-Employed, Sole Proprietor- ships, Partner- ships, Non- Profits. Corporations, Subchapter S, Self-Employed, Sole Proprietor- ships, Partner- ships, Non-Profits. Individuals who earned $5,000 in compensation in any two preceding calendar years and are expected to earn $5,000 in current year.4 Contributions permitted if individual is over 70½ and still working. One year of service with employer. 1,000 hours per year. At least 21 years of age.4 One year of service with employer (or two years if plan provides for immediate vesting). 1,000 hours per year. At least 21 years of age.4 One year of service with employer. 1,000 hours per year. At least 21 years of age.4 One year of service with employer (or two years if plan provides for immediate vesting). 1,000 hours per year. At least 21 years of age.4 2016 Retirement Plans Quick Reference Guide INTRODUCTION This guide contains information on a wide variety of tax-qualified retirement solutions for both individuals and employers. A Morgan Stanley Financial Advisor or Private Wealth Advisor can help you understand the features and benefits of the options that are available to you. Plan Features and Account Establishment QUESTION / TOPIC ROTH IRA TRADITIONAL IRA SEP SAR-SEP IRA Features • Earnings grow tax-deferred. • Contributions may be withdrawn tax-free at any time. • Tax-free distributions of earnings may be available if certain conditions are met. • No age limit for contributor. • Contributions are not deductible. • Earnings grow tax-deferred. • Contributions may be deductible for individual. • Earnings grow tax-deferred. • Simple to establish and maintain. • May be no annual IRS filing requirements for employer. • Contributions may be deductible for employer. • Deferred amount can reduce employee’s taxable income (SAR-SEP). Who may establish? An individual who has earned income or whose spouse has earned income, regardless of age. Note: Subject to certain requirements, an individual can establish a Roth IRA with a rollover or conversion from an eligible retirement plan (including an IRA), or a transfer from another IRA even if the individual doesn’t satisfy the above requirements. An individual under age 70½ who has earned income or whose spouse has earned income. Note: Subject to certain requirements, an individual can establish an IRA with a rollover from an eligible retirement plan or a transfer from another IRA even if the individual doesn’t satisfy the above requirements. Corporations, Subchapter S, Self-Employed, Sole Proprietorships, Partnerships, Non- Profits. (Non-Profits are not eligible for Salary Deferral.) SAR-SEP: Plan must have been adopted prior to 01 / 01 / 97. However, new employee accounts can be added to existing plans. Contribution eligibility Consult your Financial Advisor, Tax Advisor or Plan Administrator for additional contribution and deductibility provisions. Earned income , plus Single Filer, and MAGI1 is: ≤ $117,000: Full contribution $117,000, but $132,000:Partialcontribution ≥ $132,000: No contribution Joint Filer, and MAGI1 is: ≤ $184,000: Fullcontribution $184,000, but $194,000:Partialcontribution ≥ $194,000: No contribution Married Filing Separately, and MAGI1 is: $0, but $10,000:Partial contribution ≥ $10,000: No contribution Earned income. IRA contribution deduction may be limited if an active participant in a retirement plan at work² and Single Filer, and MAGI3 is: ≤ $61,000: Full deduction $61,000, but $71,000: Partial deduction ≥ $71,000: No deduction Joint Filer, and MAGI3 is: ≤ $98,000: Full deduction $98,000, but $118,000: Partial deduction ≥ $118,000: No deduction Married Filing Separately, and MAGI3 is: $0, but $10,000: Partial deduction ≥ $10,000: No deduction Performed service for the employer in three out of five preceding plan years. At least 21 years of age. $600 annual compensation.4 Contributions permitted if individual is over 70½ and still working. MAGI = MODIFIED ADJUSTED GROSS INCOME 1 Source: https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Amount-of-Roth-IRA-Contributions- That-You-Can-Make-for-2016 2 A deductible IRA contribution is available to a spouse not covered by an employer plan who (a) files a joint return with someone who is if MAGI is less than $194,000 or (b) is married to someone who is, but files a separate return if MAGI is less than $10,000. Source: https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2016-IRA-Contribution-and- Deduction-Limits-Effect-of-Modified-AGI-on-Deductible-Contributions-if-You-are-NOT-Covered-by-a- Retirement-Plan-at-Work 3 Source: https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2016-IRA-Contribution-and-Deduction-Limits-Effect- of-Modified-AGI-on-Deductible-Contributions-If-You-ARE-Covered-by-a-Retirement-Plan-at-Work 4 Maximum restrictions; less restrictive eligibility requirements may be selected by the employer. Certain employees may be excluded even if they satisfy the eligibility requirements described above (e.g., certain nonresident aliens). JANUARY 2016 Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in a written agreement with Morgan Stanley. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account. © 2016 Morgan Stanley Smith Barney LLC. Member SIPC. CRC1366600 12/15 PS0001 CS 8426424 01/16
- 2. Account Contributions and Accessibility QUESTION / TOPIC ROTH IRA TRADITIONAL IRA SEP SAR-SEP IRA SIMPLE IRA SIMPLE 401(K) PROFIT SHARING MONEY PURCHASE 401(K) DEFINED BENEFIT Annual deductible contribution limit: Employer (as of 1 / 1 / 16) n / a 25% of compensation or $53,000, whichever is less, for incorporated businesses; lesser of 20% of net earnings from self-employment or $53,000 for self-employed business owners / partners. Subject to $265,000 cap on compensation / net earnings. Match deferrals dollar-for-dollar up to 3% (lesser percentage may be elected under certain circumstances) of employee compensation or net earnings from self-employment or 2% nonelective contribution (subject to $265,000 cap on compensation / net earnings for 2% contribution only). Match deferrals dollar-for-dollar up to 3% of employee compensation or net earnings from self-employment or 2% nonelective contribution (subject to $265,000 cap on compensation / net earnings). 25% of compensation or $53,000, whichever is less for incorporated businesses; lesser of 20% of net earnings from self-employment or $53,000 for self-employed business owners / partners. Subject to $265,000 cap on compensation / net earnings. 25% of compensation or $53,000, whichever is less for incorporated businesses; lesser of 20% of net earnings from self-employment or $53,000 for self-employed business owners / partners. Elective 401(k) contributions are not taken into account for percentage calculations. Subject to $265,000 cap on compensation / net earnings. Complex limits apply, which take into account actuarial assump- tions (e.g., age, compensation, etc.). Subject to $265,000 cap on compensation / net earnings. Annual contribution limit: Individual (as of 1 / 1 / 16) 100% of earned income up to $5,500. Individuals 50 and older may contribute up to $6,500. SEP: Employer funded only. SAR-SEP: Salary deferrals of 25% up to $18,000; individuals 50 and older may contribute up to $24,000 (salary deferrals available under grandfathered plans only). Account can also accept Traditional IRA contributions, but not Roth IRA contributions. Salary deferral contributions of 100% of earned income up to $12,500. Individuals 50 and older may contribute up to $15,500. No Traditional or Roth IRA contributions permitted into SIMPLE IRA accounts. Salary deferral contributions of 100% of earned income up to $12,500. Individuals 50 and older may contribute up to $15,500. No pre-tax employee contributions. Individuals may receive up to 100% of compensation or $53,000, whichever is less. Other limits may apply. Individuals may receive up to 100% of compensation or $53,000 ($59,000 for individuals 50 and older), whichever is less. Elective 401(k) contributions are limited to $18,000 (individuals 50 and older may contribute up to $24,000). Other limits may apply. No pre-tax employee contribu- tions to traditional defined ben- efit plans. (After-tax contribu- tions may be permitted.) Certain limits may apply. Are contributions mandatory? No Employer — Yes Employee — No Profit Sharing — No Money Purchase — Yes No Yes Establishment deadline By tax filing date (4 / 18 / 165 ) for prior year contribution. No extensions permitted. SEP: By tax filing date, plus extensions. SAR-SEP: No new SAR-SEP plans may be established. However, new employee accounts can be added to existing plans. Oct. 1 of the current year for a current year plan for existing businesses. As soon as administratively feasible for businesses established after Oct. 1. By fiscal year-end (12 / 31 for calendar-year plan.) Contribution deadline By tax filing date (4 / 18 / 165 ) for prior year contribution. No extensions permitted. Employer — by tax filing date, plus extensions. Employee — deferral from payroll by December 31. By (4 / 18 / 165 ) for prior year annual IRA contribution. Employer — by tax filing date, plus extensions. Employee — deferral from payroll by December 31. By tax filing date, plus extensions. Employer — by tax filing date, plus extensions. Employee — deferral from payroll by December 31. By tax filing date, plus extensions. Form of contributions Cash only Profit Sharing: Cash / Securities (special rules apply) Money Purchase: Cash Only Cash / Securities (special rules apply) Cash only Who directs investments? Individual Employer / Trustee or Individual Employer / Trustee Allowable investments Please refer to your retirement plan document for information about allowable investments in your specific plan. Your Financial Advisor can help you choose specific investments appropriate for meeting your goals. Can loans be made available? No Yes Vesting Full and immediate. Deferred vesting for up to six years of service. Full and immediate vesting for employee salary deferrals and earnings. Benefits attributable to employer contributions can be subject to deferred vesting for up to six years of service. Deferred vesting for up to seven years of service. Taxation of distributions6, 7 Before Age 59½ Contributions may be withdrawn tax-free at any time. Earnings are subject to ordinary income tax plus 10% early withdrawal penalty tax. Exceptions may apply. Ordinary income tax plus 10% early withdrawal penalty tax. Exceptions to 10% penalty tax may apply. Ordinary income tax plus 25% early withdrawal penalty tax within first two years of participation, 10% thereafter. Exceptions to penalty tax may apply. Ordinary income tax plus 10% early withdrawal penalty tax. Exceptions to 10% penalty tax may apply. After Age 59½ Contributions may be withdrawn tax-free at any time. Earnings are tax-free if withdrawn after the 5-tax-year holding period.8 Ordinary income tax. No penalty tax. Beneficiaries (At Any Age) Distributions may be tax-free if withdrawn after the deceased IRA owner’s 5-tax-year holding period.8 Distributions may be subject to ordinary income tax, but no penalty tax. n / a At Any Age n / a A lump-sum distribution may be eligible for favorable tax treatment under limited circumstances. Qualifying employer securities may be eligible for Net Unrealized Appreciation. Required Minimum Distributions (RMDs) None for original account owner. Required minimum distributions generally apply to beneficiaries of Roth IRAs the year after the account owner’s death. Begin the year individual turns age 70½. The first distribution may be postponed to 4 / 1 of the following year. (An individual with multiple IRAs may typically take the total RMD amount from any IRA(s).) RMDs generally apply to beneficiaries the year after the account owner’s death, unless another option is available and selected. May not aggregate RMD amounts from multiple plans. RMD from each plan must be distributed from each respective plan. Generally not required if still working and less than 5% owner of the business. Transfers No limit on qualifying transfers between IRAs (subject to certain conditions). Employer may transfer plan to like account. Employee may not transfer assets from plan during employment. Rollovers Must be eligible for rollover (e.g., not an RMD or a distribution from an inherited IRA) and, for IRA-to-IRA rollovers, does not violate the 1-year waiting period. Must have triggering event (e.g., plan termination, death, severance from employment, disability) and be an eligible rollover distribution (as defined under the federal tax rules) to roll into IRA or other retirement plan. 5 Except for residents of MA and ME, for whom 4/19/16 is the tax filing date due to Patriots Day. 6 Before taking any distributions from your retirement account, check with your Tax Advisor for additonal information about taxes or penalties that may or may not apply to you. 7 Distributions from Roth IRAs are considered to come from contributions first, followed by converted funds and then earnings. 8 The 5-tax-year holding period begins the first day of the first year for which a regular contribution (or in which a rollover or conversion contribution) is made to any Roth IRA established for the individual as owner.