Act signed into law on March 9, 2002, effecting technical changes to EGTRRA. Provisions effected by JCWAA include the following:
- A qualified employer plan may provide for voluntary employee contributions to a separate account that is deemed to be an IRA. For purposes of deemed IRAs, the term “qualified employer plan” includes the following types of plans maintained by a governmental employer:
- a qualified retirement plan
- a qualified annuity plan under section 403(a),
- a tax-sheltered annuity plan under section 403(b), and
- an eligible deferred compensation plan under section 457(b).
- The Employee Retirement Income Security Act (“ERISA”) is intended to apply to a deemed IRA in a manner similar to SEP IRA
- Permits distributions from a section 401(k) plan, a tax-sheltered annuity plan, or an eligible deferred compensation plan to be made when the participant has a severance from employment (rather than separation from service).
- Clarified that that distributions made after severance from employment (rather than separation from service) are taken into account for only one year in determining top-heavy status.
- Clarified that elective deferrals to a SEP are not subject to the deduction limits and are not taken into account in applying the limits to other SEP contributions.
- Clarified that the combined deduction limit of 25 percent of compensation for qualified defined benefit and defined contribution plans does not apply if the only amounts contributed to the defined contribution plan are elective deferrals
- Makes a conforming change to the rule that limits the amount of SEP contributions that may be made for a particular employee. Under the provision, contributions are included in an employee’s income to the extent they exceed the lesser of 25 percent of compensation or $40,000 (indexed), subject to a reduction in some cases.
- Clarified that the small business tax credit for new retirement plan expenses applies in the case of a plan first effective after December 31, 2001, even if adopted on or before that date
- Clarified that a qualified retirement plan must provide for the direct rollover of after-tax contributions only to a qualified defined contribution plan or a traditional IRA.
- Clarified that, if a distribution includes both pretax and after-tax amounts, the portion of the distribution that is rolled over is treated as consisting first of pretax amounts
Additional Helpful Information
Other provisions of JCWAA include the following :
- If a participant in a qualified retirement plan ceases to be employed with the employer maintaining the plan, the plan may distribute the participant’s nonforfeitable accrued benefit without the consent of the participant and, if applicable, the participant’s spouse, if the present value of the benefit does not exceed $5,000.
- Under JCWAA, a plan may provide that the present value of the benefit is determined without regard to the portion of the benefit that is attributable to rollover contributions (and any earnings allocable thereto) for purposes of determining whether the participant must consent to the cash-out of the benefit. The provision clarifies that rollover amounts may be disregarded also in determining whether a spouse must consent to the cash-out of the benefit.