SIMPLE 401(k) Plan
Definition A SIMPLE 401(k) plan is a 401(k) plan established by a small business for it’s employees. Earnings accrue on a tax-deferred basis and distributions
March 3, 2009
Answer
Excess amounts to SIMPLE IRAs are contributions made to an employee’s IRA in excess of certain limits. These excess amounts should be distributed from the SIMPLE IRA as soon as possible. An employer who sponsors a SIMPLE IRA may use the IRS’ http://www.irs.gov/retirement/article/0,,id=112985,00.html Voluntary Correction Program (VCP) to correct this error. Under the VCP, if an excess amount is attributable to elective deferrals, the plan sponsor may effect distribution of the excess amount, adjusted for earnings through the date of correction, to the affected participant. The amount distributed to the affected participant is includible in gross income in the year of distribution. The distribution is reported on Form 1099-R for the year of distribution with respect to each participant receiving the distribution. In addition, the plan sponsor must inform affected participants that the distribution of an excess amount is not eligible for favorable tax treatment accorded to distributions from a SIMPLE IRA plan (and, specifically, is not eligible for tax-free rollover). If the excess amount is attributable to employer contributions, the plan sponsor may effect distribution of the employer excess amount, adjusted for earnings through the date of correction, to the plan sponsor. The amount distributed to the plan sponsor is not includible in the gross income of the affected participant. The plan sponsor is not entitled to a deduction for such employer excess amount. The distribution is reported on https://retirementdictionary.live-website.com/definitions/1099rirsform Form 1099-R issued to the participant indicating the taxable amount as zero.
Under the VCP, if an excess amount is not distributed from the SIMPLE IRA plan, a special fee, in addition to the VCP submission fee, will apply. The plan sponsor is not entitled to a deduction for an excess amount retained in the SIMPLE IRA plan.
Notwithstanding the above, if the total excess amount in a SIMPLE IRA plan, whether attributable to elective deferrals or employer contributions, is $100 or less, the plan sponsor is not required to distribute the excess amount and the additional fee described in the preceding paragraph does not apply.
For additional information, see http://www.irs.gov/pub/irs-tege/simple__checklist.pdf Pub 4284 SIMPLE IRA Plan Checklist
This is a Q&A presented by the IRS and answered by the IRS from the March 2008 issue of the IRS Employee Plans Newsletter
Definition A SIMPLE 401(k) plan is a 401(k) plan established by a small business for it’s employees. Earnings accrue on a tax-deferred basis and distributions
Definition Savings incentive match plan for employees of small employers (SIMPLE IRA) An IRA based retirement savings vehicle, established by a small business owner for
Definition Individual retirement arrangement (IRA) is an umbrella term that covers individual retirement account and individual retirement annuity. These are retirement savings vehicles established by
Definition Also known as the Saver’s Tax Credit: Nonrefundable tax credit available to eligible individuals who make contributions to their retirement account. The saver’s credit
Cookie | Duration | Description |
---|---|---|
cookielawinfo-checbox-analytics | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics". |
cookielawinfo-checbox-functional | 11 months | The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". |
cookielawinfo-checbox-others | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other. |
cookielawinfo-checkbox-necessary | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary". |
cookielawinfo-checkbox-performance | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance". |
viewed_cookie_policy | 11 months | The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data. |