The South Florida Resource for Qualified Retirement Plans |
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Remind Clients To Remove Excess Salary Deferrals!
And Help Them Avoid ADP/ACP Non-Discrimination Testing For 2022
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Excess Salary Deferrals
The total of all salary deferrals a participant is allowed to make to various retirement plans - including 401k, 403b, and SARSEP plans - is $19,500 (plus an additional $6,500 if age 50 or older) for 2021.
Please note that individuals who made salary deferral contributions to two or more retirement plans in 2021 may be most at risk for exceeding the deferral limit. If an individual defers more than this limit for 2021, the excess deferral amount plus earnings must be distributed to participants by April 15th, 2022. Per the IRS (IRC Section 402(g)(1) and Reg. Section 1.402(g)-1(e)(2)), unless excess deferrals are timely distributed, they will be included in a participant's taxable income for the year contributed, and taxed a second time when the deferrals are ultimately distributed from the plan. The corrective distribution must be made no later than April 15th following the close of the calendar year during which the excess deferral was made.
ADP/ACP Testing
The ADP test is an acronym for the Actual Deferral Percentage test, a specific non-discrimination test that applies to employee salary deferral or 401(k) contributions; ACP test is short for the Average Contribution Percentage test. Generally speaking, the ACP test applies to employer matching contributions. Both tests compare the average deferral/contribution rates of the Highly Compensated Employee (HCE) group of participants to the average deferral/contribution rate of the Non-highly Compensated Employee (NHCE) group of participants. The plan documents specify the testing method. If the plan fails the ADP/ACP test then plan sponsors must ensure that the refund due as a result of ADP/ACP non-discrimination testing is distributed by March 15th.
To avoid the ADP/ACP testing your clients can establish a 401k Safe Harbor plan. Typically, Safe Harbor 401(k) plans automatically pass the ADP/ACP tests.
If you need guidance on sorting out excess deferrals now, or helping your clients avoid ADP/ACP non-discrimination testing in the future by establishing a 401k Safe Harbor Plan, contact us.
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Tax Credits For Your Clients |
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There’s never been a better time for your small business clients to start up a retirement plan for their employees and for themselves.
Under the SECURE Act the setup and administration costs paid by a small business employer can now be basically cut in half for the first three years. How is that possible? The SECURE Act increased the small employer tax credit for new plans up to $5000 per year for the first three plan years (more if auto-enroll and auto-deferral are added).
Eligibility for the credit is limited to employers meeting the following requirements:
- 100 or fewer employees receiving at least $5,000 in compensation for the preceding year, and
- At least one plan participant was a non-highly compensated employee (NHCE), and
- In the three tax years before the first year eligible for the credit, the employees weren't substantially the same employees who received contributions or accrued benefits in another plan sponsored by the employer, a member of a controlled group which includes that employer, or a predecessor of either.
Eligible employer plans for purposes of the credit include:
- Profit sharing/401k plans under 401(a)
- Annuity plans under 403(a)
- Simplified employee pension plans under 408k
- Simple retirement accounts under 408(p)
The tax credit equals the greater of (1) $500 or (2) the lesser of (a) $250 for each non-highly-compensated employee who is eligible to participate in the plan or (b) $5,000 per year, but cannot exceed 50% of the cost to set up and administer the plan. The credit is applicable for each of the first three years of the plan.
Following is a chart to help guide you:
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The SECURE Act also created a small employer new tax credit of up to $500 per year to defray the cost of automatic enrollment of a new 401k or SIMPLE IRA plan, or for an existing plan choosing to add an automatic enrollment provision, for up to three years. This credit is in addition to the start-up credit to small employers and is available for three years. The three-year period begins in the first taxable year in which the plan includes an Eligible Automatic Contribution Arrangement (EACA), as defined in section 414(w)(3).
For help in maximizing this opportunity for your clients by either establishing a retirement plan or adding an automatic enrollment provision, contact us today.
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Stress Busters for Tax Season
Four Ways To Manage Your Stress During This Busy Time Of Year
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At the start of another busy season, accountants across the country are bracing for the long weeks, longer hours, and mounting pressure generated by way too much work being squeezed into too few days leading up to the biggest tax deadlines of the year.
The ability to manage stress is an important skill for CPAs, and not just during busy season. Accountancy has long been a high-stakes profession. Ensuring that a client's books or taxes are in order is a great responsibility.
Here are some tips as you move through this particularly challenging time of year:
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Get regular exercise: Our minds and bodies are connected. Ignoring the health of one has negative effects on the other. "Studies indicate that our mental firepower is directly linked to our physical regimen," wrote Ron Friedman in Harvard Business Review. As such, maintaining a healthy exercise routine can help you feel more alert and energized at work, even though you may feel that you shouldn't take the time out of your schedule.
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Develop good sleep habits: "The shorter your sleep, the shorter your life," writes Matthew Walker, Ph.D., in his best-selling book Why We Sleep. "The leading causes of disease and death in developed nations [...] such as heart disease, obesity, dementia, diabetes, and cancer all have recognized causal links to a lack of sleep." It's clear that what happens when we sleep informs how we act when we're awake. Sleep affects not only our health, but how we process information, and how we react to stressful situations...so don't skimp on getting your ZZZZs!
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Embrace a healthy diet: The fuel you put into your body is just as important as your rest and exercise. If you're familiar with the term "hangry," you understand how much our food intake impacts our mood. But the links go beyond even that: a study from the University of Gothenburg found that hormones released during hunger adversely affect our decision-making skills. So make sure you're not missing meals, and that you're filling your "tank" with healthy fuel.
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Practice mindfulness techniques: While it might seem counterintuitive, mindfulness in the workplace can be extremely beneficial. Taking time to put ourselves in the present moment and reflecting on our surroundings helps us stay centered and calm in even the most chaotic of times. We can't always change the circumstances of our day, but we can change how we respond to them; taking a moment to recalibrate is always a good decision.
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Frye Retirement Affiliations |
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We offer approved seminars at our office or yours. |
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Frye Retirement Planning
20900 West Dixie Highway
Aventura, FL 33180
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