CHAPTER 16

Retirement Plans

Alert
At the time this book was printed, Congress had not extended numerous breaks for 2012 that had expired at the end of 2011. Check the online supplement in February 2013 at www.jklasser.com or www.barbaraweltman.com to see whether these breaks apply for 2012 returns.

The Social Security benefits you may expect to receive will make up only a portion of your retirement income. In order to help you save for your own retirement and to encourage employers to provide retirement benefits to employees, the tax laws contain special incentives for retirement savings. Broadly speaking, if a retirement plan conforms to special requirements, then contributions are deductible while earnings are not currently taxable. What is more, employees covered by such plans are not immediately charged with income. If you have employees, setting up retirement plans to benefit them not only gives you a current deduction for contributions you make to the plan but also provides your staff with benefits. This helps to foster employee goodwill and may aid in recruiting new employees.

The type of plan you set up governs both the amount you can deduct and the time when you claim the deduction. Certain plans offer special tax incentives designed to encourage employers to help with employee retirement benefits. Even though you may be an employer, if you are self-employed (a sole proprietor, partner, or LLC member), you are treated as an employee for purposes of participating in these plans.

In this chapter you will learn about:

  • Qualified retirement plans
  • Added costs for retirement plans
  • Retirement plans for self-employed individuals: self-employed qualified plans, SEPs, and SIMPLE plans
  • 401(k)s, Roth 401(k)s, and Db(k)s
  • Individual Retirement Accounts (IRAs), including Roth IRAs
  • When to take action
  • Comparison of qualified retirement plans
  • ESOPs
  • Correcting plan defects
  • Nonqualified retirement plans
  • Glossary of terms for retirement plans
  • Where to claim deductions for retirement plans

For further information about retirement plans, see IRS Publication 560, Retirement Plans for Small Business, IRS Publication 590, Individual Retirement Arrangements, IRS Publication 3998, Choosing a Retirement Solution for Your Small Business, and IRS Publication 4333, SEP Retirement Plans for Small Business.

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