Retirement Times: March 2016

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Volume IX | Number III | March 2016

2016 Tax Saver’s Credit

Participants may be eligible for a valuable incentive, which could reduce their federal income tax liability, for contributing to your company’s 401(k) or 403(b) plan. If they qualify, they may receive a Tax Saver’s Credit of up to $2,000 ($4,000 for married couples filing jointly) if they made eligible contributions to an employer sponsored retirement savings plan. The deduction is claimed in the form of a non-refundable tax credit, ranging from 10 percent to 50 percent of their annual contribution.

When participants contribute a portion of each paycheck into the plan on a pre-tax basis, they are reducing the amount of their income subject to federal taxation. And, those assets grow tax-deferred until they receive a distribution. If they qualify for the Tax Saver’s Credit, they may even further reduce their taxes.

Participants’ eligibility depends on their Adjusted Gross Income (AGI), tax filing status and retirement contributions. To qualify for the credit, a participant must be age 18 or older and cannot be a full-time student or claimed as a dependent on someone else’s tax return.

The chart below can be used to calculate the credit for the tax year 2014. First, participants must determine their Adjusted Gross Income (AGI) –total income minus all qualified deductions. Then they can refer to the chart below to see how much they can claim as a tax credit if they qualify.

Source: IRS Form 8880

Source: IRS Form 8880

For example:

• A single employee whose AGI is $17,000 defers $2,000 to her retirement plan will qualify for a tax credit equal to 50% of her total contribution. That’s a tax savings of $1,000.

• A married couple, filing jointly, with a combined AGI of $37,000 each contributes $1,000 to their respective company plans, for a total contribution of $2,000. They will receive a 20% credit reducing their tax bill by $400.

With the Tax Saver’s Credit, participants may owe less in federal taxes the next time they file by contributing to their retirement plan. Accompanying this newsletter is a memo you can distribute to your employees regarding the 2016 Tax Saver’s Credit.

IRS Retirement Plan Reporting and Disclosure Requirements

Administrators or sponsors of retirement plans are generally required by law to report certain information with the IRS, the Department of Labor, and the Pension Benefit Guarantee Corporation, and disclosure to affected parties depending on the plans’ type, size, and circumstances.
Below is an excerpt from the IRS’s Retirement Plan Reporting and Disclosure Requirements regarding annual notices that are to be distributed to participants.

Annual Notice to Participants

The Reporting and Disclosure Guide for Employee Benefit Plans was prepared by the IRS as a quick reference tool for certain basic reporting and disclosure requirements for retirement plans under the Internal Revenue Code and provisions of Employee Retirement Income Security Act of 1974 (ERISA) administered by the IRS. The Guide is not intended to be an exhaustive list of possible civil penalties and other consequences for reporting and disclosure violations. The Department of Labor and the Pension Benefit Guaranty Corporation reviewed the parts of the Guide that concerns provisions the agencies jointly administer. View the entire guide at: https://www.irs.gov/pub/irs-tege/irs_reporting_disclosure_guide.pdf. This Guide should be used in conjunction with the DOL Retirement Plan Reporting and Disclosure Guide at http://www.dol.gov/ebsa/pdf/rdguide.pdf and DOL’s www.dol.gov/ebsa/pdf/troubleshootersguide.pdf. Please be sure to check for current laws and regulations on other DOL reporting and disclosure provisions on EBSA’s website at www.dol.gov/ebsa.

The Reporting and Disclosure Guide for Employee Benefit Plans was prepared by the IRS as a quick reference tool for certain basic reporting and disclosure requirements for retirement plans under the Internal Revenue Code and provisions of Employee Retirement Income Security Act of 1974 (ERISA) administered by the IRS. The Guide is not intended to be an exhaustive list of possible civil penalties and other consequences for reporting and disclosure violations. The Department of Labor and the Pension Benefit Guaranty Corporation reviewed the parts of the Guide that concerns provisions the agencies jointly administer. View the entire guide at: https://www.irs.gov/pub/irs-tege/irs_reporting_disclosure_guide.pdf. This Guide should be used in conjunction with the DOL Retirement Plan Reporting and Disclosure Guide at http://www.dol.gov/ebsa/pdf/rdguide.pdf and DOL’s www.dol.gov/ebsa/pdf/troubleshootersguide.pdf. Please be sure to check for current laws and regulations on other DOL reporting and disclosure provisions on EBSA’s website at www.dol.gov/ebsa.

Pass or Fail? Corrective Actions to Remedy Your Test Results

Each year you receive a “pass” or “fail” from your service provider regarding required non-discrimination testing (the Actual Deferral Percentage test and the Actual Contribution Percentage test). The ADP/ACP tests govern the amounts of deferrals and/or matching contributions that highly compensated employees (HCEs) are allowed to make or receive in relation to those of non-highly compensated employees (NHCEs).

If you received a “fail” do not panic. As long as an IRS-prescribed corrective action is undertaken, the plan’s health is not in jeopardy. Correction can be made by either:

1.  Refunds of excess contributions (plus earnings thereon) to HCEs
2.  By employer qualified non-elective contributions (QNECs) or qualified matching contributions (QMACs) to NHCEs under the plan, or
3.  By recharacterizing excess contributions. The most common corrective method is the refund of excess contributions to HCEs following IRS procedures.

Refunds must be distributed within two and a half months (or six months in the event the plan has an EACA design) following the end of the plan’s test year (March 15 for calendar year plans) in order to avoid an excise tax. Contact your plan consultant for more information.
Are You Monitoring Your Forfeiture Account?

Qualified plans have a requirement to not carry forward any unallocated assets from year-to-year. Unfortunately, this rule is frequently neglected by plan sponsors, much to their chagrin when the failure is discovered on audit by the IRS or Department of Labor (DOL). Thus, it is important to remember that forfeitures must be allocated on an annual basis. The process is typically determined per the provisions in your plan document, or by plan procedures. Forfeitures should not be held over from year-to-year; if they remain accidentally unallocated, complications can result. On audit it is not uncommon for the regulatory agencies to require a plan sponsor to retroactively determine who should have received allocations on a year-by-year basis. Once those retroactive allocations have been made, the regulatory agencies typically require the plan sponsor come out of corporate pocket for earnings on all retroactively allocated amounts. This is not only a monetary burden, but an administrative burden as well due to the fact that fiduciaries must find participants who may have terminated, because they were due these allocations (and earnings) as well as participants who remain active. For questions on this topic, contact your plan consultant.

Communication Corner: Tax Saver’s Credit Reminder

This month’s employee memo is titled, “Tax Savers Credit Reminder”. This memo reminds participants that they may be eligible for a valuable incentive, which could reduce their federal income tax liability by contributing to the company’s retirement plan.

As a reminder, we post each monthly participant memo online via the Fiduciary Briefcase (fiduciarybriefcase.com).

Call or email your plan consultant if you have questions or need assistance.

Download a PDF of the Retirement Times here.

This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. (c) 2016. Retirement Plan Advisory Group.
Mutual funds are sold by prospectus only. Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of a mutual fund. The fund prospectus provides this and other important information. Please contact your representative or the Company to obtain a prospectus. Please read the prospectus carefully before investing or sending money. Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions. . Rebalancing assets can have tax consequences. If you sell assets in a taxable account you may have to pay tax on any gain resulting from the sale. Please consult your tax advisor. S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index. ACR#172463 02/16
To add yourself to this list, or to add a colleague, please email us at mbankston@argenttrust.com or call (800) 269-0076.

About

Argent Financial Group

Celebrating its 30th anniversary in 2020, Argent Financial Group (Argent) is a leading, independent, fiduciary wealth management firm. Responsible for more than $30 billion in client assets, Argent provides individuals, families, businesses and institutions with a broad range of wealth management services, including trust and estate administration, investment management, ESOPs, retirement plan consulting, funeral and cemetery trusts, charitable organization administration, oil and gas (mineral) management and other unique financial services. Headquartered in Ruston, Louisiana, Argent was formed in 1990 and traces its roots back to 1930.

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