Per Diem Rates from the U.S. General Services Administration
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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
What is a Qualified Retirement Plan?
Qualified retirement plans are referred to as HR-10 plans or Keogh Plans. They are called qualified plans because they must meet the requirements of certain tax law tests set of the Internal Revenue Code. These plans allows for tax deferment and tax-free accumulation of income until benefits are withdrawn.
There are two categories of qualified plans:
- Defined Contribution Plans:
You define how much you want to contribute from you pay to your plan each year. Contributions to a defined contribution plan can be done in two ways.- Either the company's profit-sharing plan, where only the employer contributes to the plan, or
- a money-purchase plan, where the employee contributes to the plan out of his/her pay.
- Defined Benefit Plans:
You set a certain benefit goal for yourself and fund it. For example, you may decided you'll need $5,000 a month when you retire to live on. An actuarial computation is made annually by the company to determine your annual contribution amount needed to achieve your beneit goal. Your annual benefit can't exceed 100% of your average compensation over your three highest consecutive calendar years or $265,000 for 2023 ($245,000 for 2022), whichever is less.
There are various types of qualified plans:
- 401 (k) plans
- 403 (b) plans
- Profit-sharing plans
- Keogh (HR-10) plans
Nondiscrimination Rules
Qualified plans include a nondiscrimination rule to ensure that all employees of a company are eligible for the same benefits no matter their position in the company. For example, an employer is not allowed to favor highly compensated executives over other employees.
Funding a Qualified Plan
Qualified plans are funded with pre-tax dollars and have no cost basis, which means the money you put into your plan has not been taxed. Withdrawals made before age 59 1/2 are subject to an early withdrawal penalty, with certain exceptions, such as total disability. When benefits are withdrawn they are included in income and are subject to income taxes.
Qualified plans are subject to a variety of stringent rules under federal law. Some laws come under the jurisdiction of the Treasury Department and the IRS, while others fall under the Department of Labor. The law and regulations applicable to retirement plans change frequently. The company's plan document and determination letter, if applicable, must be kept up to date.
Because law and regulation changes for retirement plans may be changed from time to time, be sure your plan document and determination letter, if applicable, are up to date.
Keogh Plans
Qualified retirement plans set up by self-employed persons are sometimes called Keogh Plans, named after U. S. Representative Eugene Keogh from New York State because he was key in enacting the Self-Employed Individuals Tax Retirement Act of 1962. This legislation became known as the Keogh Act.
However, after the passage of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) in 2001, the distinction between Keoghs and other plans was removed. The Internal Revenue Code now refers to what use to be Keogh plans as HR-10 or qualified retirement plans. These plans must be for the exclusive benefit of employees or their beneficiaries.
Who Can Set Up a Qualified Plan?
Corporations, partnerships and self-employed persons may set up a qualified plan.
There are two basic steps in setting up a qualified plan.
- First, you adopt a written plan
- Then, you invest the plan assets
A One-Participant 401(k) Plan (Solo-401(k)
A one-participant 401(k) plan, sometimes referred to as a solo-401(k), individual 401(k), or uni-401(k), generally follows the same rules as other 401(k) plans. However, since there are no employees who work for the business, other than your spouse if you're married, it is exempt from discrimination testing.
Employer Deduction for Plan Contributions
If you set up a qualified retirement plan for your employees, you may deduct, within limits, the contributions you make to the plan on their behalf.
Self-employed Persons Treated as both employer and employee
For income tax purposes, a self-employed person, such as a sole proprietor or partner in a general partnership, is not treated as an employee of his own business.
However, for retirement plan purposes a self-employed person wears two hats, one as "employee" and another as "employer". This means a self-employed person may make two separate contributions for himself, one under the contribution rules that apply to an employee and another under the contribution rules that apply to an employer.
This "double-contribution rule allows a substantially greater contribution amount! (Note that this "double-contribution" rule for self-employed persons also applies to SIMPLE plans but not SEP plans.)
Qualified Plans are More Expensive to Operate
Qualified plans are more complex to set up and administer than SEP or SIMPLE plans and may require professional assistance. For example, if you set up a defined benefit plan, which is a plan that pays fixed benefits based on actuarial projections, the services of an actuary will be required to determine the annual funding requirement for the plan.
In addition, you may need a pension professional to help you comply with the variety of rules governing qualified plans. For example, nondiscrimination rules, top-heavy rules, coverage rules and participation rules. You may also need professional help to amend the plan to reflect changes in the law when they occur.
Qualification Rules for Qualified Plans
To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law.
Qualification rules include:
- Nondiscrimination in coverage, contributions, and benefits.
- Minimum age and service requirements.
- Minimum vesting standard
- Limits on contributions and benefits.
- Top-heavy plan requirements.
Qualified Plan Participation Rules
In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements:
- Has reached age 21
- Has at least one year of service (two years if the plan is not a 401(k) plan and provides that after not more than two years of service the employee has a nonforfeitable right to all his or her accrued benefit).
Restrictions on Conditions of Participation in a Qualified Plan
The qualified plan cannot require as a condition of participation that an employee complete more than one year of service. Nor can the plan exclude an employee because of a specified age.
Minimum Vesting Standards for Qualified Plans
Your plan must satisfy minimum vesting standards. A benefit is vested when it becomes nonforfeitable. In other words, the plan participant has a fixed right to the benefit.
Correcting Mistakes in the Operation of Your Plan
If you haven't operated your plan according to the law or the plan language, you can use the IRS's Fix-it Guides for 401(k) plans, 403(b) plans, SARSEP plans, SEP-IRA plans, and SIMPLE IRA plans to correct mistakes.