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401(K) PLANS

401(K) PLANS. Presented by: Mary Read, CPC, QPA National Director of Qualified Plan Marketing. For Financial Professional Use Only. Not For Use With the Public. DISCLOSURE.

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401(K) PLANS

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  1. 401(K) PLANS Presented by: Mary Read, CPC, QPA National Director of Qualified Plan Marketing For Financial Professional Use Only. Not For Use With the Public.

  2. DISCLOSURE This material is intended as a general discussion of qualified plan concepts and strategies. It is not intended as specific advice concerning any individual legal, tax or accounting matter. Alliance Benefit Group-Pentegra does not provide legal, tax or accounting advice. Any questions regarding your individual situation should be directed to your personal advisor on such matters. For Financial Professional Use Only- Not For Use With Public

  3. TYPES OF RETIREMENT PLANS • Defined Contribution • Contribution is limited • Retirement benefit is unknown • Benefit depends on the amount of contributions made and any growth of plan investments • Profit Sharing • Money Purchase • 401(k) • Target Benefit For Financial Professional Use Only- Not For Use With Public

  4. 401(k) Plan Contributions Contribution Limit Allocation Limit • 25% of total participating payroll • Matching contributions • Qualified non-elective contributions • Profit sharing contributions Does NOT include employee salary deferrals • 100% of pay, maximum $50,000 • Matching contributions • Qualified non-elective contributions • Profit sharing contributions • Salary Deferrals • DOES include employee salary deferrals For Financial Professional Use Only – Not for the Public.

  5. What is a 401(k) Plan? • Eligible employees can save for their retirement by making salary deferrals • pre-tax income • after-tax income • combination of both • Can include an employer matching or non-elective contribution • discretionary profit sharing contribution. For Financial Professional Use Only – Not for the Public.

  6. 401(k) PROFIT SHARING PLANS • Traditional 401(k) • Safe Harbor 401(k) • Solo-k • Roth 401(k) For Financial Professional Use Only – Not for the Public.

  7. 401(k) FEATURES • Pre-tax employee salary deferrals • Catch-up contributions for those age 50 and older • Roth 401(k) Deferrals • Optional tax-deductible employer contributions • Matching contributions • Qualified non-elective contributions • Profit Sharing contributions • Tax-deferred growth* *Distributions from a 401(k) are taxed as ordinary income and, if taken prior to age 59 ½ may be subject to an additional 10% federal income tax penalty. For Financial Professional Use Only – Not for the Public.

  8. TRADITIONAL 401(k) PLANS • Eligibility: Age 21 and 1 year of service (1000 hours worked annually) • Employer Contributions subject to vesting schedule • Subject to Average Deferral Percentage Test For Financial Professional Use Only – Not for the Public.

  9. 401(k) SALARY DEFERRAL PLAN • Salary Deferral Limit Type of planLimit 2012 • 401(k) $17,000 • 403(b) $17,000 • SARSEP $17,000 • 457$17,000 • SIMPLE $11,500 For Financial Professional Use Only – Not for the Public.

  10. Catch Up Deferral Eligible employees Must attain age 50 by December 31 Plan must permit 401(k) SALARY DEFERRAL PLAN 401(K) Catch up contribution • $5,500 • SIMPLE Catch up contribuiton • $2,500 For Financial Professional Use Only – Not for the Public.

  11. Special Rule 403(b) Participants • A special rule applies to participants in a 403(b) plan who sponsor their own Defined Contribution plan • Maximum allocation includes salary deferrals made in a 403(b) plan Example: Salary deferral in 403(b) $16,500 Profit sharing contribution $33,500 Total $50,000 For Financial Professional Use Only – Not for the Public.

  12. ADP TEST • The HCEs’ average may only exceed the NHCEs’average(for both the ADP and ACP tests) by specific limits summarized as follows: • NHCE PercentageMaximum HCE Percentage • 2% or less NHCE % × 2 • 2%–8% NHCE % + 2 • more than 8% NHCE % × 1.25 For Financial Professional Use Only – Not for the Public.

  13. CASE STUDYINDUSTRIAL DESIGN, INC. This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ. For Financial Professional Use Only – Not for the Public.

  14. 401(k) Owner Deferral 6.8% Needed Rank and file Deferral 4.8% This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ. For Financial Professional Use Only – Not for the Public.

  15. Safe Harbor 401(k) Plans • Avoids ACP and ADP Tests • Pre-Tax/Roth Salary Deferrals • Mandatory Employer Contribution • 100% immediate vesting of mandatory employer contribution • Employer Safe Harbor Contributions also used to satisfy Top Heavy and Gateway minimums • Optional Profit Sharing Contributions which can be subject to a vesting schedule For Financial Professional Use Only – Not for the Public.

  16. Safe Harbor 401(k) Plans • Employer must contribute either • Match: 100% on deferrals up to 3% of pay and 50% on deferrals between 3 and 5% of pay; or • Non-Elective: 3% of pay for all eligible participants For Financial Professional Use Only – Not for the Public.

  17. SAFE HARBOR 401(k) Employer Contribution Owners receive 22.2% and 20% of compensation Contributed for employees 4.734% of compensation This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ. For Financial Professional Use Only – Not for the Public.

  18. 401(k) FOR ONE 401(k) for One For highly compensated employees only Combine with a profit sharing contribution, or with a separate defined benefit plan Reduced 401(k) administrative fees For Financial Professional Use Only- Not For Use With Public 18

  19. 401(k) FOR ONE $47,500 Catch Up Deferral $5,500 (over Age 50) Compensation $100,000 401(k) Deferral $17,000 $25,000 Profit Sharing Contribution (25% of Pay) The above example is purely hypothetical and for illustrative purposes only. The example shown here does not represent the actual results of any particular plan and your results will likely differ. For Financial Professional Use Only- Not For Use With Public

  20. RECORDKEEPING • Investment Platform • Employee Access • Individual Accounts For Financial Professional Use Only – Not for the Public.

  21. ADMINISTRATION • 401(a)(4) Nondiscriminatory Allocations • 401(a)(9) Compensation Limitation • 402(g) Excess Deferrals • 404 Maximum Deductible Contributions • 410(b) Minimum Coverage Testing • 414(s) Testing for non-safe harbor compensation • ADP/ACP Testing • 415 Annual Addition Testing • 416 Top Heavy Testing • Nondiscriminatory Benefits/Rights/Features • Determination of Highly Compensated Employees • Comprehensive compliance reporting package • Analysis of testing results • Corrective scenarios in the event of test failures • Preparation of Government filings • - IRS Form 5500 and applicable schedules (A, C, D, E, G, H, I, R, MB, SB, SSA) • - Summary Annual Report (SAR) • - IRS Form 5558 (Extension for Form 5500) • - IRS Form 5330 • -Tax reporting, including Form 1099-R, 1096, 945 and 1099-MISC For Financial Professional Use Only – Not for the Public.

  22. ALLIANCE BENEFIT GROUP-PENTEGRA Training, custom plan proposals, prospecting and marketing materials are free. We are only a phone call away! Lori J. Carpenter Advisor Relationship Manager (800) 255-8678 Direct: 704.716.8596 lcarpenter@abgcarolinas.com Mary Read CPC, QPA National Director of Qualified Plans Marketing 802-477-2018 mread@abgpentegra.com • Outstanding Personal Service • Industry Experts • No Commission Splits • No Hidden Fees For Financial Professional Use Only – Not For Use With Public

  23. CIRCULAR 230 DISCLOSURES • The above information is not intended or written to be used, and it cannot be used, by any person for the purposes of avoiding any penalty that may be imposed by the Internal Revenue Service. • In the event the advice is also considered to be a “marketed opinion” within the meaning of the IRS guidance, then as required by the IRS, please be further advised of the following:The above advice was written to support the promotion or marketing of the transactions or matters addressed by the written advice and, based on the particular circumstances, you should seek advice from an independent tax advisor. For Financial Professional Use Only- Not For Use With Public

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