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5 Changes for Your 2014 Qualified Retirement Plan
Posted By Barbara Weltman On January 6, 2014 @ 2:00 pm In Finance | 4 Comments
Most businesses have a qualified retirement plan to enable owners and employees to save for retirement on a tax-advantaged basis. Self-employed individuals may also have a qualified retirement plan to shelter profits while saving for retirement.
If you have a qualified retirement plan or if you don’t but are thinking of choosing one, there are some changes afoot for 2014.
The limits on contributions to defined contribution plans (such as profit-sharing plans) and benefits payable from defined benefit (pension) plans are higher for 2014  than in 2013. The deduction limit for contributions to defined contribution plans is $52,000 (up from $51,000 in 2013). The limit for benefits under a defined benefit plan is $210,000 (up from $205,000 in 2013).
However, limits on 401(k) plans and SIMPLE plans for small businesses are unchanged. Participants in 401(k)s can add no more than $17,500 as elective deferrals (employees reduce their taxable compensation by the amount they add to the plan). An additional $5,500 can be added by those age 50 or older by December 31, 2014. Those in SIMPLEs can add up to $12,000 (plus $2,500 for those 50 or older by year end).
In figuring contributions and benefits, no more than a set amount of compensation can be taken into account. The compensation limit for 2014 is $260,000 (up from $255,000 in 2013).
Traditional 401(k) plans can allow participants to make after-tax contributions to a Roth account, called a designated Roth account  (PDF). This can be made by allocating annual contributions between the traditional 401(k) and the designated Roth. Alternatively, it can be done by converting funds in the traditional account to a designated Roth. This is referred to as an in-plan rollover.
The converted funds become immediately taxable, but enable the participant to build up tax-free income in the future. The converted amounts are not subject to the 20% mandatory withholding that usually applies to plan distributions. There is no 10% early distribution penalty even if the participant is under age 59-1/2.
Plans are not required to offer the in-plan rollover option, but may want to do so as a way to give employees more retirement planning flexibility. For safe harbor 401(k)s (plans that automatically enroll employees but give them the option to opt out or lower their predetermined contributions), mid-year changes to plans, even favorable ones, usually are not allowed. However, under a special rule, such plans can add the in-plan rollover option during 2014. A plan amendment reflecting this change must be completed by December 31, 2014.
Pension plans must pay annual premiums to the Pension Benefit Guaranty Corporation (PBGC) to help fund benefits paid to workers in companies that cannot meet their promised pension obligations. This would include companies that have gone out of business or pension plans that do not have sufficient funds. Premium rates for 2014  are slightly higher than in 2013.
The flat-rate premium is $49 per plan participant (up from $42 in 2013). This rate is paid regardless of the fiscal viability of a pension plan. In addition, there is a variable rate premium owed by plans that are underfunded (they do not have sufficient funds to meet projected pension promises). The rate for 2014 is $14 per $1,000 of unfunded vested benefits (UVBs). This is up from $9 per $1,000 of UVB in 2013. The variable rate premium is capped at $412 per participant. However, plans with fewer than 25 employees have a lower cap.
The economic landscape isn’t static and change in 2014 may favor certain types of investments over others.
Investment firms have been pushing the U.S. Department of Labor to increase “retirement readiness” by making changes to retirement plan rules. Their motives may not be altruistic, but Congress may decide nonetheless to put retirement savings on a more automatic basis. This could include mandatory plan contributions, much like Social Security and Medicare tax payments by workers, employers, and self-employed individuals. As talk of overall tax reform proceeds in Congress, pay attention to any enactment of changes impacting retirement plans.
Take the time at the start of the year to review your current retirement plan, if you have one. Talk with your tax and financial advisor to assess where you are now and whether changes are desirable.
Retirement nest egg  photo via Shutterstock
Article printed from Small Business Trends: http://smallbiztrends.com
URL to article: http://smallbiztrends.com/2014/01/changes-2014-qualified-retirement-plan.html
URLs in this post:
 higher for 2014: http://www.irs.gov/irb/2013-49_IRB/ar07.html
 called a designated Roth account: http://www.irs.gov/pub/irs-drop/n-13-74.pdf
 Premium rates for 2014: http://www.pbgc.gov/prac/prem/premium-rates.html
 Retirement nest egg: http://www.shutterstock.com/pic-103079882/stock-photo-golden-nest-egg-concept-for-retirement-savings.html?src=04lMZKcT8-3e-E1MafhEig-1-59