Put Planning in Employer Retirement Plans

January
01

Written by: Jon McGraw

Google “retirement savings success stories” and you’ll have nearly 25 million hits about successfully retiring early, amassing hundreds of thousands of dollars in retirement savings, sprinkled with articles about planning.

Planning is the key, whether you’re one who diligently reviews the previous year’s progress or one who simply keeps plugging contributions into an employer-sponsored plan and individual retirement accounts.

Following is an update to contribution limits for employer plans in 2014. As always, if you have questions we’re here to help. Download the update here.

Employer Retirement Plans in 2014:

The annual 401(k) pay-in maximum remains the same for everyone at $17,500 in 2014, as it was for 2013.  Employees who were born prior to 1965 can contribute an additional $5,500 for a total of $23,000.  These contribution limitations apply to 403(b) and 457 plans as well.   Plan contributions did increase and can be based now on up to $260,000 of compensation in 2014, which is up $5,000 from 2013.

The pay-in limit for Defined Contribution plans is $52,000, which is a $1,000 boost for Keoghs, Profit-Sharing plans and the like over 2013’s pay-in limits.

The benefit limit for Pension plans rises to $210,000 in 2014 – $5,000 more than in 2013.

Individual(k) [I-401(k) Plan] Contribution Limits:

Are you self-employed and looking to save for retirement and reduce taxes at the same time? Check out the I-401(k) plan designed especially for you!  Two contribution components comprise the I-401(k) plan contribution: an employee salary deferral contribution and an employer profit sharing contribution.

For 2014, each owner working in the business is able to contribute up to lesser of 100% of compensation or $17,500. In addition, a separate profit sharing contribution can be made to an I-401(k) as well.  The profit sharing portion is limited to 25% of the employee’s compensation up to the annual compensation cap (if the business is a corporation) or 20% of the employee’s self-employment income (if a sole proprietorship or partnership). The annual compensation cap is $260,000 for 2014.  There is a total contribution limit applicable to both sources of $52,000 in 2014 (subject to annual cost-of-living adjustments for later years).

In addition to the contribution limits stated above, an employee 50 years of age or older may also make an additional “catch-up” contribution to the I-401(k) plan. The permissible “catch-up” contribution is $5,500.

Also remember a spouse may also be eligible to open their own I-401(k) account provided they have separate income and are covered by the plan.

Notes for other Employer Plans:

401(k) Roth:  The rules for Roth 401(k) Plans are similar to Roth IRAs in that account earnings build up tax free and most payouts escape tax at distribution.  However, the Roth 401(k) pay-in cap is much higher than for a Roth IRA.  The standard 401(k) limitations apply: A $17,500 maximum plus $5,500 more if you were born before 1965.  And Roth 401(k) plans have no income ceilings on contributions, unlike the $181,000- $191,000 cap ($114,000 – $129,000 cap for singles) for Roth IRAs.

Simplified Employee Pension (SEPs): Contribution limits for the SEP plan increase in 2014.  The annual limit on the amount of employer contributions to a SEP has increased to the smaller of: 25% of eligible employee’s compensation or $52,000.  The maximum amount of an employee’s compensation you can consider when figuring SEP contributions (including elective deferrals) and the deduction for contributions has increased to $260,000 for 2014.  It should also be noted that a spouse and/or children may also participate in a SEP plan, as long as they are employees of the company.

SIMPLE Plans:  For 2014, the limit on salary reduction contributions to a SIMPLE plan remains at $12,000.  Catch-up contributions for SIMPLE plan can permit participants who are age 50 or older at the end of the calendar year to make catch-up contributions: The smaller of $2,500 or the excess of the participant’s compensation over the salary reduction contributions that are not catch-up contributions.

There are a number of additional retirement plan options and we would be honored to discuss the strategy that is best for you. Call 816-285-9000 to schedule a visit.