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Personal Checking |
Business Checking | Money Markets
Savings, CDs, IRAs | Rates |
Order Checks
Savings | Certificates of Deposit | IRAs
| Minimum Balance | Service Charges | Description |
| $50 minimum daily balance | No Service Charge if minimum balance is maintained. If the balance falls below the minimum anytime during the statement cycle, there is a $5 service charge. | The FCB
savings account pays top savings interest rates with a low minimum
balance. $50 minimum opening deposit
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| Benefits | ||
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Additional Information:
Interest is compounded and credited quarterly. If the account is closed before interest is credited, you will not receive the accrued interest. 6 withdrawals are allowed each month. *Excess withdrawals are $3 If the account is closed within 7 months, there is a $15 closing fee |
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Christmas Club
A savings account designed to help customers save for the holidays.
Christmas Clubs are offered in $5, $10, $20, and $30 denominations. If you
make 49 payments, THE 50th PAYMENT IS PAID BY US as interest. Club payments may
be made in person or set up to be automatically transferred from another FCB
account. Christmas Clubs are opened annually beginning in November. Club
payout checks are mailed the last week in October.
Vacation Club
A savings account designed to help customers save for their real estate
taxes or summer vacation. Vacation Clubs are offered in $10, $20, and $30
denominations. If you make 49 payments, THE 50th PAYMENT IS PAID BY US as
interest. Club payments may be made in person or set up to be automatically
transferred from another FCB account. Vacation Clubs are opened annually
beginning in May. Club payout checks are mailed the last week in April.
Additional Information
Withdrawals are not permitted from Christmas or Vacations Club accounts. In the event of an extreme emergency the account can be closed with a charge of $15.00. A check will not be issued if less than three payments are made to the account. The balance will be forfeited to cover the cost of supplies, maintenance, and handling, etc.
In order to receive the 50th payment FREE, all 49 payments must be made on schedule. For the current Club schedules, see the sign inside each FCB Banks’ lobby, contact any FCB Bank office, or see the Club payment schedule provided at sign up. The 50th payment will be paid as bonus interest.
FCB’s Certificates of Deposit offer top rates, while keeping your money FDIC insured. A $1,000.00 opening deposit is all that is needed to get this account started. Bonus interest rates are available for depositors with a “49er Checking Account” or “Mini-Jumbo and Jumbo” deposits.
Interest earned on the certificates can be compounded quarterly, credited to a FCB account (monthly or quarterly), or mailed to you by check (monthly or quarterly).
Terms Available:
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Rate Information:
These accounts are interest-bearing accounts. The interest rate and
annual percentage yields are included in the Rate Chart. Interest begins to
accrue no later than the business day we receive credit for the deposit of
noncash items (for example checks). Interest will be compounded quarterly
and credited to that account quarterly. The annual percentage yield assumes
interest will remain on deposit until maturity. A withdrawal will reduce
earnings.
Balance Information:
We use the daily balance method to calculate the interest on the account.
This method applies a daily periodic rate to the principal in the account
each day. You must maintain a minimum balance of $0.01 in the account each
day to obtain the disclosed annual percentage yield.
Limitations:
A minimum opening deposit of $1,000.00 is required to open this account.
Additional deposits and withdrawals are not permitted until the maturity
date of the account.
Early Withdrawal Penalties:
If you withdraw any of the principal before the maturity date, we may
impose a penalty of 3 months simple interest on the amount withdrawn if the
term of the certificate is 12 months or less. If the term of the certificate
is over 12 months, the penalty will be 12 months simple interest on the
amount withdrawn. Any interest that has compounded becomes part of the
principal and the same penalty applies for withdrawals of compounded
interest.
Additional Time Account Information:
If the interest rate and annual percentage yield on your certificate
include a 49er or Super Special bonus rate, the checking account which
qualified the certificate for a bonus rate must remain open for the term of
the certificate. If the account is closed, the certificate interest rate and
annual percentage yield will be lowered by the amount of the bonus.
If the certificate is lost, stolen, or destroyed, an indemnity bond will be required. In certain circumstances, we may issue the indemnity bond. If we issue the indemnity bond, the charge is the greater of $45.00 or ½ % of the value of the certificate.
You must tell us which kind of account you want before the account is opened. If you select your account to automatically renew, your account will automatically renew at maturity. You will have 10 days after the maturity date to withdraw funds without a penalty. If you do not select the automatic renewal option, the account will not renew at maturity. If you do not renew the account, your funds will remain in the account and earn no interest.
Certificates of Deposit require that interest is compounded or paid at least annually.
New Coverdell Education Savings
Accounts | Roth IRA
Traditional IRA | SEP |
Simple IRA
New Coverdell Education Savings Accounts
What is a Coverdell Education Savings Account?
A Coverdell Education Savings Account is a type of tax-preferred savings
and investment account authorized by Internal Revenue Code Section 530 to
encourage taxpayers to save for future education expenses. Coverdell
Education Savings Accounts first became available as of January 1, 1998, for
the 1998 calendar year, as a result of the Taxpayer Relief Act of 1997. The
annual contribution limit for contributions during the period of 1998-2001
was $500 per designated beneficiary. The annual contribution limit for
contributions for tax year 2002 and subsequent years is $2,000 per
designated beneficiary.
Who generally establishes Coverdell Education Savings
Accounts?
Grandparents and parents generally are the individuals who establish
Coverdell Education Savings Accounts. However, there is no legal requirement
that a person must be a relative of the person for whom they wish to
contribute funds to a Coverdell Education Savings Account. The new tax law
authorizes entities other than individuals to make contributions to a
child’s Coverdell Education Savings Account. For example, a nonprofit entity
such as a church or foundation could make a contribution to a Coverdell
Education Savings Account for a child.
What is the new purpose for Coverdell Education Savings
Accounts?
The primary reason for creating and establishing Coverdell Education
Savings Accounts has been greatly expanded. Prior to EGTRRA, the defined
purpose of a Coverdell Education Savings Accounts was to accumulate funds to
be used to pay for college, technical school, or postgraduate work. The
Coverdell Education Savings Account can be used to be used to pay for
elementary and secondary education (kindergarten through grade 12) expenses
incurred in a public, private or religious school, as well as for college,
technical school, or postgraduate work.
Am I eligible to contribute to a Coverdell Education Savings Account?
You are eligible to contribute to one or more Coverdell Education Savings Accounts as long as your income is within
certain limits depending upon your tax-filing status, and the designated beneficiary of each Coverdell Education Savings
Account has not attained age 18.
Can I make a contribution to a traditional IRA or Roth IRA and a Coverdell Education Savings Account in
the same year?
Yes. There are separate contribution limits for a traditional IRA or Roth IRA and a Coverdell Education Savings Account.
These limits are independent of each other.
How much can I contribute to a Coverdell Education
Savings Account?
You are allowed to contribute up to $2000 per year per beneficiary.
When do I have to establish and fund the Coverdell
Education Savings Account?
The rules for the Coverdell Education Savings Account will be
the same as for the traditional IRA and the Roth IRA. You have until the due
date (without extensions) for filing your federal income tax return,
normally April 15, to establish and fund your IRA for the previous tax year.
The Tax Benefit
The income earned by or within Coverdell Education Savings Accounts will
not be taxable when distributed if withdrawn to pay qualified education
expenses. Under pre-EGTRRA law, the income earned by a Coverdell Education
Savings Account was not taxable if it was used to pay qualified higher
education expenses. Under EGTRRA, this income is not taxable if it is used
to pay qualified education expenses for qualified elementary, secondary, or
post-secondary education expenses.
When may the designated beneficiary start to withdraw
money or assets from his or her Coverdell Education Savings Account?
The designated beneficiary may begin withdrawals at any time. However,
he or she will want to understand the income tax consequences of taking
distributions at certain times.
What distributions from a Coverdell Education Savings
Account will not be taxed at all?
If money is withdrawn from the Coverdell Education Savings Accounts and
used to pay qualifying education expenses, your designated beneficiary will
not be required to pay income tax on the amount withdrawn. Another way to
make this statement is: distributions from a Coverdell Education Savings
Account will be excluded from income tax (i.e. not subject to tax) to the
extent that the distributions do not exceed the qualified education expenses
incurred by the beneficiary of the account in the year of the distribution.
The amount of educational expenses for which a distribution from a Coverdell Education Savings Account can be used and not be subject to the tax must be reduced by the amount of any qualified scholarship, educational assistance allowance, or payment that is excludable from the beneficiary’s gross income.
What distributions from a Coverdell Education Savings
Account will be partially taxable?
A distribution which either exceeds the amount of qualified education
expenses or which is not used for qualified education expenses will be
partially taxable.
Is there an additional tax of 10% for distributions not
used for education expenses?
Yes. If a distribution is not used for education expenses (and none of
the exceptions apply at the time funds are withdrawn from the account, i.e.
death, disability, receipt of scholarship, or removal of an excess
contribution) then the designated beneficiary will be liable to pay the 10%
excise tax on that portion of the distribution that is taxable. The 10%
excise tax will not be owed on the portion of the distribution that consists
of the basis or contributions to the account.
How is the term “qualified education expenses” defined?
Qualified education expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance
at an eligible educational institution. Distributions used for these expenses will be excluded from income tax, regardless of
whether or not the beneficiary is a full-time, half-time, or less than half-time student. Distributions will also be
excludable for students who are carrying at least one-half of the normal full-time course load, when used for the reasonable
expense amounts incurred for room and board. Reasonable expense amounts for room and board are determined by the institution
in calculating costs of attendance for federal financial aid programs. Qualified education expenses also include any purchase
of tuition credits or any amount contributed to a state tuition program for the beneficiary.
In addition, the term “qualified education expenses” includes the following:
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Expenses for tuition, fees, academic tutoring, books, supplies and other equipment incurred on account of enrollment at or attendance in an elementary or secondary school;
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Expenses for special needs services in the case of a special needs person;
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Expenses for room and board, uniforms, transportation and supplementary items (including extended day programs) which are provided or required by the school;
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Expenses for the purchase of any computer equipment or technology, including intrenet access and services as long as used during any of the years the beneficiary is in school. However, any software must be predominantly educational in nature.
Must a Coverdell Education Savings Account be terminated when the beneficiary attains age 30?
Yes. The earnings portion of such account will need to be included in income, and the 10% additional tax will apply
because the distribution was not used for qualifying education expenses. Such taxation may be avoided if a qualifying rollover
takes place prior to age 30.
What is a Roth Individual Retirement Account (Roth
IRA)?
A Roth IRA is a type of tax-preferred savings and investment account
authorized by Internal Revenue Code section 408A. The Roth IRA allows you to accumulate assets for retirement purposes and
for other purposes. A Roth IRA will produce tax-free income if certain rules
are met. You or your beneficiary(ies) will not be required to include in
income, for income tax purposes, a distribution paid from a Roth IRA,
whether it be the return of a contribution or the account’s earnings, if
certain rules are met. In some cases, you may be eligible to claim a tax credit because of your Roth IRA contribution.
What is the basic concept of a Roth IRA, and what are
the associated tax benefits?
If you are eligible, you may make contributions, within limits, to the
Roth IRA. You make these contributions with after-tax dollars. The earnings
realized by the Roth IRA are not presently taxed, and if certain
distribution rules are met, will never be taxed. You are not required to
withdraw any distribution amount from a Roth IRA while you are
alive. And, even though your beneficiaries will be required to receive
certain distributions, these distributions can be made over a
number of years. This means the funds (contributions and earnings) within
your Roth IRA which your beneficiary(ies) will have inherited will continue
to accumulate for some time within the inherited Roth IRA and will not be
taxed when distributed. These are great tax benefits.
When do I have to establish the Roth IRA?
You have until the due date (without extensions) for filing your federal
income tax return, normally April 15, to establish and fund your Roth IRA
for the previous tax year.
Am I eligible to contribute to a Roth IRA?
You are eligible if you satisfy the following two requirements: (1) you
have earned income or compensation; and (2) you meet certain income
limitations. Be aware that you are eligible to make contributions to a Roth
IRA even though you are age 70 1/2 or older. For a given year, you may be
ineligible to contribute to a Roth IRA, but still be eligible to contribute
to a traditional IRA and/or a Coverdell Education Savings Account. Note. The cost of living adjustments to the phase out and the threshold levels for 2008 means more individuals will be eligible to make Roth IRA contributions for 2008.
What are the income limits for eligibility purposes?
If your income (and your spouses income, it you are married) is too
high, you will not be eligible to make a contribution to a Roth IRA. For
2007, if you are single, you become ineligible when your adjusted gross
income is $114,000 or greater. If you are married, and file a joint return,
you become ineligible when the combined adjusted gross income (AGI) of you
and your spouse is $166,000 or greater. If you are married and file a
separate return, you become ineligible when your adjusted gross income is
$10,000 or greater.
How much am I eligible to contribute to my Roth IRA for the 2007
and 2008 tax year if I will NOT be at least age 50 as of December 31?
You are eligible to contribute the lesser of 100% of your compensation, or
$4,000.00 as reduced by (1) application of the special income and filing
status limitation rule and (2) any amount you contribute to your traditional
IRA for the same tax year.
For 2008 you are eligible to contribute the lesser of 100% of your compensation, or $5,000 as reduced by (1) application of the special income and filing status limitation rule and (2) any amount you contributed to your traditional IRA for the same tax year.
How much am I eligible to contribute to my Roth IRA for the 2007 and
2008 tax year if I will be at least age 50 as of December 31?
You are eligible to contribute the lesser of 100% of your compensation, or
$5,000, as reduced by (1) application of the special income and filing
status limitation rule and (2) any amount you contributed to your
traditional IRA for the same tax year.
For 2008 you are eligible to contribute the lesser of 100% of your compensation, or $6,000 as reduced by (1) application of the special income and filing status limitation rule and (2) any amount you contributed to your traditional IRA for the same tax year.
May I contribute to a Roth IRA after age 70 ½?
Yes, no age limit is imposed for Roth IRA contribution. The only requirement is that you must have earned income for the
year for which the contribution is made.
May my spouse or I use the spousal IRA contribution rules to make
a contribution to our respective Roth IRA?
Yes. One of you (or your spouse) will be eligible to make a spousal contribution to
a Roth IRA if the following rules are satisfied:
- You and your spouse must each have your own Roth IRA.
- You must be married as of the end of the tax year (i.e. December 31).
- You must file a joint income tax return.
- You must have compensation includible in gross income which is less than that of your spouse.
Your annual Roth IRA contribution will be limited to the lesser of (1) $4,000/$5,000 or $5,000/$6,000, as applicable; or (2) the sum of your compensation which is includible in gross income for such year, plus the compensation of your spouse, as reduced by your spouse’s contribution to his or her own traditional IRA and Roth IRA.
ROLLOVER CONTRIBUTIONS
If I receive a distribution from one Roth IRA, may I roll over the funds to a second Roth IRA?
Yes. Distributed funds, unless rolled over, would need to be partially included in income as discussed below. The purpose of a rollover is to change an otherwise taxable event into a nontaxable event. The rules which govern a “Roth-to-Roth” rollover are the same as for a rollover from one traditional IRA to another traditional IRA. You must comply with the 60-day rule and you are only entitled to one such rollover within a 12-month period.
May I roll over funds from a qualified plan, a governmental 457 plan, or a section 403(b) plan to a Roth IRA?
Not for tax year 2007. Beginning with tax year 2008, such rollovers will be permitted. Such rollover will be a Roth IRA conversion contribution.
May I roll over or convert part or all of my traditional IRA to Roth IRA?
A conversion is accomplished by having funds distributed from a traditional IRA and rolling the over to a Roth IRA within 60 days. This can be done internally at your financial institution, or by transfer of the traditional IRA funds at one institution to a Roth IRA at another institution.
Under current rules, in order to convert a traditional IRA to a Roth IRA, your income, or, if married, your and your spouse’s combined adjusted gross income must be $100,000 or less in the year of the conversion, and, if married, you must file a joint tax return.
In 2010, these conversion requirements will be repealed, and any individual, regardless of income or filing status, will be able to convert funds from a traditional IRA to a Roth IRA.
Special tax relief for conversions made in 2010. If you perform the conversion in 2010, a special rule allows you to include ½ of the distributed amount in income in 2011, and ½ in 2012. No taxes will be owing on the conversion amount in 2010. However, if you desire, you may include the entire amount in income in 2010. If you perform the conversion after 2010, this special tax relief will no longer be available, and the entire amount distributed from the traditional IRA must be included in income in the year the conversion is made.
Whatever conversion method is used, the custodian/trustee of the traditional IRA will prepare a Form 1099-R to report the distribution, and the custodian/trustee of the Roth IRA will prepare a 5498 to report the conversion contribution.
Why might I want to convert my traditional IRA to a Roth IRA?
You might find it advantageous to incur the tax consequences of a present distribution in order to qualify to earn the right to have taxation when the earnings are ultimately distributed from the Roth IRA.
What are the tax consequences of receiving a distribution from a traditional IRA and “rolling over” the distribution to a Roth IRA?
In general, the amount distributed to you from your traditional IRA will be included in your income in the year of receipt and will be subject to income taxes for that year. The 10% premature distribution excise tax, however, will not be owed, even if you are younger than age 59 ½.
When may I start to withdraw money or assets from my
Roth IRA?
You may begin withdrawals at any time. However, you will want to
understand the income tax consequences of taking distributions at certain
times.
Must I commence required minimum distributions from my
Roth IRA at age 70 ½?
No. The required minimum distribution rules for living accountholders
(age 70 ½ ) do not apply to distributions from a Roth IRA.
What happens to my Roth IRA after I die?
The funds or assets in your Roth IRA will be paid to your designated
beneficiaries in any way which either you or they select, as long as the
required minimum distribution rules for inherited Roth IRAs are satisfied
over the beneficiary’s life expectancy. As mentioned previously, your
beneficiary will generally be able to maintain your Roth IRA as an inherited
Roth IRA so that there will continue to be tax-free earnings for many years
after your death.
How do I establish a Roth IRA?
Just come in and talk with us or give us a call.
Traditional Individual Retirement Accounts
What is a traditional Individual Retirement Account
(traditional IRA)?
A traditional IRA is a special tax-deferred savings account authorized
by Internal Revenue Code section 408. It is a unique and simple way to
encourage people to save money for retirement. This brochure discusses the
features of the traditional IRA. Other brochures discuss the features of the
Roth IRA, Coverdell Education Savings Accounts, SEP-IRA and the SIMPLE-IRA.
What are the tax benefits realized from a traditional
IRA?
Generally for 2007 you may add up to $4,000 or $5,000 of earned income to your IRA account each year and have it
be either fully or partially tax deductible. If your contribution is tax deductible, then you receive two tax benefits: 1) an
immediate tax savings because you will pay fewer taxes because of the deduction and 2) the earnings generated by the IRA funds
are not taxed until distributed. If your contribution is not tax deductible, you still receive the benefit of tax deferred
earnings. You may also qualify for a new tax credit.
When do I have to establish the traditional IRA?
You have until the due date (without extensions) for filing your federal
income tax return, normally April 15, to establish and fund your traditional
IRA for the previous tax year.
Am I eligible to contribute to a traditional IRA?
You are eligible for a regular contribution if you do not reach age 70
1/2 in the calendar year for which you wish to make the contribution, and
you have compensation (income earned from performing material personal
services). You may also qualify for a rollover or a transfer contribution.
How much am I eligible to contribute to my traditional IRA for
the current tax year if I will NOT be at least age 50 as of December 31?
You are eligible to contribute the lesser of 100% of your compensation, or
$4,000, for 2007, as reduced by any amount you contributed to your
Roth IRA for the same tax year. In 2008, the allowed contribution will
increase to $5,000. This amount will be adjusted by a cost-of-living
factor in future years.
How much am I eligible to contribute to my traditional IRA for the
current tax year if I will be at least age 50 as of December 31?
You are eligible to contribute the lesser of 100% of your compensation, or
$5,000, for 2007, as reduced by any amount you contributed to your
Roth IRA for the same tax year. In 2008, the allowed contribution will
increase to $6,000. This amount will be adjusted by a cost-of-living factor
in future years.
May I contribute to my traditional IRA and also my Roth IRA for the
same year?
Yes, but your aggregate traditional IRA and Roth IRA contributions are
subject to the applicable contribution limit for such year.
May my spouse or I use the spousal IRA contribution rules to make a
contribution to our respective traditional IRAs?
Yes. One of you will be eligible to make a spousal contribution to a traditional IRA if the following rules are satisfied:
- You and your spouse must each have your own traditional IRA.
- You must be married as of the end of the tax year (i.e. December 31).
- You must file a joint income tax return.
- You must have compensation includible in gross income which is less than that of your spouse.
Your annual traditional IRA contribution will be limited to the lesser of (1) $4,000, or $5,000, as applicable; or (2) the sum of your compensation which is includible in gross income for such year plus the compensation of your spouse as reduced by your spouse’s contribution to his or her own traditional IRA and Roth IRA.
To what extent will I be entitled to a tax deduction
for my IRA contribution?
The answer depends upon your filing status, whether or not you and/or your spouse are covered by an employer sponsored retirement plan at work, and your modified adjusted gross income (AGI). The amount you can deduct is the contribution limit, as applicable, for 2007 and 2008 as reduced by the amount you cannot deduct. If you are single and you are not covered under an employer-sponsored retirement plan, then you are entitled to a full deduction to the extent of your contributions, regardless of your income. If you are married and neither you nor your spouse is covered under an employer-sponsored retirement plan, then you are entitled to a full deduction to the extent of your contributions, regardless of income. If you are single and you are covered under an employer-sponsored retirement plan, or if you are married and either you or your spouse is covered under an employer-sponsored retirement plan, then you will be entitled to only a partial deduction or no deduction.
Can I make nondeductible contributions?
Yes. You may make nondeductible contributions when you are unable to claim a tax deduction or you choose not to claim a tax deduction.
When may I start to withdraw money or assets from my
traditional IRA?
You may begin withdrawals at any time. However, you will want to
understand the income tax consequences of taking distributions at certain
times.
When am I required to start withdrawing the money in my
IRA?
You must make a withdrawal of a minimum amount by April 1 of the year
following the calendar year in which you reach age 70 1/2, and by each
December 31 thereafter. The minimum amount is calculated using the IRA
minimum distribution rules then in effect.
What happens if I fail to withdraw the required minimum
distribution?
Current federal income tax law provides a penalty tax of 50% of the
amount which was required to be distributed, but which was not. For example,
if your required minimum distribution for a year is $1,000, and you withdrew
nothing, you would owe a tax of $500.
Must I withdraw all of my money because I am 701/2, or may I withdraw IRA funds in a number of payments?
You are not required to withdraw all of your IRA funds in one year. You may, if you wish, but you are not required to do this. You are also permitted to set up a distribution schedule over a number of years, as long as you take each year your RMD amount or a larger amount.
As long as your money is in your IRA, it remains tax deferred, as do any earnings. By using Periodic Payments over a number of years, you spread your income out over the Payment schedule and typically will pay less tax.
May I withdraw more than my required minimum distribution?
Yes, you are always able to withdraw more, but only to the extent of your IRA account balance.
What happens to my IRA when I die?
The funds will belong to the individual(s) or entities you have designated
to be the beneficiary(ies) of your IRA. There are rules requiring your
beneficiary(ies) to withdraw certain minimum distributions by various
deadlines. If such distributions do not occur by the appropriate deadline,
then yourbeneficiary will owe the 50% excise tax. You may want to apprise
your beneficiary(ies) that he or she is a beneficiary of your IRA. The rules
as to when and how much must be withdrawnby your beneficiary(ies) will
depend on whether you die before or after your required beginning date. In
general, your beneficiary may choose to withdraw the funds over his or her
life expectancy. You may wish to refer to IRS Publication 590, Individual
Retirement Arrangements, for a discussion of the rules applying to the
beneficiary. The rules which apply to a beneficiary will not apply to your
spouse if he or she is your sole primary beneficiary and he or she elects to
treat your IRA as his or her own IRA. In this case, your spouse will not be
required to start withdrawing funds until he or she becomes subject to the
required distribution rules as an IRA accountholder. You will want to
discuss this subject with your legal or tax advisor.
How do I establish my IRA?
Just come in and talk with us.
SEP - Simplified Employee Pension Plan
What is a Simplified Employee Pension (SEP) plan?
A SEP, also known as a SEP-IRA, is a retirement plan established by an
employer. A one-person business is considered an employer for these purposes
and may establish a SEP. An employer can use this SEP plan to make
contributions to the IRAs of eligible employees, including himself or
herself. A SEP is a written arrangement (a plan) that allows an employer
to make deductible contributions for the benefit of participating employees.
The contributions are made to traditional individual retirement arrangements
(IRAs) set up for participants in the plan. Under a SEP, traditional IRAs
must be set up for each qualifying employee. IRAs may have to be set up for
leased employees, but they do not have to be set up for excludable
employees. Traditional IRAs set up under a SEP plan are referred to as
SEP-IRAs.
Who is eligible to establish a SEP?
Any employer, including a sole proprietor, partnership, or corporation,
can establish a SEP. The corporation may either be a for-profit corporation
or a nonprofit corporation. A governmental entity may also establish a SEP.
When a self-employed individual sponsors a SEP, he or she is considered to
be both the employer and an employee.
Why would an employer, including a one-person business,
want to have a SEP?
There are five excellent reasons for establishing a SEP:
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The SEP contribution is deductible by the employer, and it is not included in the employee's income for the year.
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The SEP contributions are not subject to withholding or FICA taxes unless you are self-employed.
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Interest earned on the SEP deposit is sheltered from federal and most state income taxes until withdrawals are made at retirement.
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Due to the effects of compounding, the SEP funds can grow into a sizable nest egg for retirement.
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Administrative and legal costs are generally substantially less than would be incurred under a qualified plan.
What is the contribution deadline?
The employer’s contribution deadline is the due date of that year's tax
return, including any extensions. For many corporations, this is March 15.
For most individuals, this is April 15. If there is an extension, it is permissible to make the contribution by September 15 or October 15, as applicable.
When must a person start to withdraw the money from the
SEP-IRA?
With certain exceptions, a person must begin distributions by the first
day of April following the calendar year in which he or she attains age 70 ½
and December 31 of each year thereafter.
How will distributions be taxed?
Distributions will be taxed as ordinary income. If the participant is
under age 59 ½ penalties may apply.
Who is responsible to administer the SEP?
The sponsoring employer is responsible for the SEP’s administration. The
employer may well need to consult with its tax and legal advisor. A
financial institution’s general role is to serve as the depository and not
as the plan administrator.
How does an employer establish a SEP?
Just talk with any of our retirement account specialists. They will
discuss the benefits of SEPs with you and explain our investment vehicles.
What employees must an employer cover under the SEP?
The employer must cover an individual who is a qualifying employee. Such an employee is one who:
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Has attained the age of 21 years;
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Has worked for the employer in at least three of the immediately preceding five years, and
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Received at least $500.00 during the calendar year
An employer may establish less strict eligibility requirements.
If an employer fails to cover a person who is eligible, then there is no SEP plan, and the favorable tax benefits will be lost.
The following employees need not be covered by a SEP:
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Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by their union and the employer, and
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Nonresident alien employees who have no U.S. source of earned income from the employer.
If an employer “leases” employees, it should consult with it tax advisor, as special rules may apply.
Can a person who is age 701/2 or older establish or contribute to a SEP-IRA after attaining age 701/2?
Yes. A self-employed person who is over 701/2, but who still has net earnings from his or her business, is eligible to
establish a SEP and make a SEP-IRA contribution. A business which sponsors a SEP-IRA plan is required to make a SEP-IRA
contribution for each employee who has met the age and service requirement. This includes employees who are age 701/2 or
older. It would be unlawful discrimination for a business to fail to make a SEP-IRA contribution just because an employee had
attained age 701/2 or older.
What technical requirements must a plan meet to be a SEP?
A SEP requires a written plan document that meets the requirements of Internal Revenue Code section 408(k). This plan
document requirement is normally met by using IRA Form 5305-SEP or an approved SEP prototype document. A SEP requires each
participant to establish an approved IRA. Employer contributions to a SEP must be made under a definite written formula
specifying the method for allocating contributions to each participant (a percent of compensation).
What is the cost to the employer?
The cost depends on the degree to which the employer makes contributions. SEPs have relatively few governmental reporting
requirements, which makes a SEP less costly to administer.
Must the employer make a contribution each year?
The employer has total discretion whether or not to make a contribution each year under a SEP. The employer need not make
any contribution.
How much can be contributed and deducted on my behalf for 2007?
For 2007, the SEP rules permit an employer to contribute up to 25% of each participating employee’s compensation, or
$45,000, whichever is less, to the employee’s SEP-IRA.. These contributions are funded by the employer.
How much can be contributed and deducted on my behalf for 2008?
For 2008, the SEP rules permit an employer to contribute up to 25% of each participating employee’s compensation, or $46,000, whichever is less, to the employee’s SEP-IRA. These contributions are funded by the employer.
Can an employer prohibit distributions from an employee’s SEP-IRA?
No. Also, an employer cannot condition its SEP contributions on the keeping of any part of them in the IRA.
Can an employee make regular IRA contributions into a SEP-IRA?
The answer is generally “yes.” However, the extent to which a deduction will be allowed for the contribution may be
limited by participation in the SEP or any other qualified pension plan. The employee should consult with their tax advisor to
determine the amount of deductible and nondeductible contribution(s) available to them.
How do my employer’s contributions affect my taxes?
Your employer’s contributions to your SEP-IRA are excluded from your income rather than deducted from it. Your employer’s
contributions to your SEP-IRA should not be included in your wages on your Form W-2 unless there are contributions under a
salary-reduction arrangement. Unless there are excess contributions, you do not include any contributions in your gross
income; nor do you deduct any of them.
What are excess contributions?
If your employer contributes more than is allowed, you must include the excess in your gross income, without any
offsetting deduction.
How do I correct an excess contribution?
You should follow the instructions set forth in IRS Publication 590.
What happens to a SEP-IRA when the participant dies?
The funds in a SEP will be paid to a participant’s beneficiaries. Depending on their relationship to the participant, they
may have the potential to partially continue to shelter the funds from current taxation. The standard IRA distribution rules
for beneficiaries will apply.
SIMPLE-IRA - Savings Incentive Match Plans for Employees of Small Employers
What Is a SIMPLE?
A SIMPLE-IRA plan is a new type of employer-sponsored retirement plan. A
SIMPLE has its own special features which will make it attractive to some
employers and unattractive to others. If you are an employee and not an
employer, you will still benefit from understanding how a SIMPLE plan works.
An employee may enjoy substantial tax benefits by participating in a
SIMPLE-IRA plan.
Why have a SIMPLE-IRA plan?
The main reason is – you are allowed to save for retirement and you receive substantial tax benefits as an incentive to do
so.
What Businesses or Employers May Establish a SIMPLE?
To be eligible to have a SIMPLE, an employer must meet two requirements. First, an employer will be eligible if it employed 100 or fewer employees on any day during the year who earned $5,000 or more in compensation from the employer during the year. Second, the employer (or any predecessor employer) cannot currently maintain another Qualified Plan. For these purposes, a Qualified Plan includes a qualified retirement plan, a qualified annuity plan, a governmental plan, a tax-sheltered annuity, and a SEP to which contributions were made or benefits were accrued, for service in the calendar year.
May a Sole Proprietor Establish a SIMPLE?
Yes. A sole proprietor may establish a SIMPLE as long as the rules
discussed above are satisfied. When a self-employed individual sponsors a
SIMPLE, he or she is considered to be both the employer and an employee.
If you are self-employed, you are allowed to make an elective deferral up to the maximum permitted without regard to any “percentage of compensation” as is common with profit sharing and SEP- IRA plans. You are, however, not allowed to defer more than the lesser of: your net earnings or the applicable annual limit.
Why Would an Employer and Its Employees Want to Have a
SIMPLE-IRA?
There are six excellent reasons:
-
An employee, by making elective deferrals, can defer current income taxation.
-
An employer is allowed to deduct the cost of these elective deferrals.
-
Interest earned on the SIMPLE deferrals is sheltered from federal and most state income taxes until withdrawn.
-
Due to the effects of compounding, the SIMPLE funds can grow into a sizable nest egg for retirement.
-
Administrative and legal costs are generally substantially less than would be incurred under a qualified plan.
-
Current IRA rules limit deductibility for regular IRA contributions for employees who themselves (or their spouse) participate in an employer-sponsored retirement plan. An employee’s participation in a SIMPLE-IRA may provide him or her deduction opportunities to take the place of the regular IRA.
Why do some small employers like SIMPLE-IRA plans rather than 401(k) plans?
The administrative costs of 401(k) plans can become expensive, since there is the requirement to file the annual Form
5500. In addition, there would not be as many fiduciary concerns with the SIMPLE-IRA as with the 401(k) plan.
Why do some small employers like SIMPLE-IRA plans rather than profit sharing or SEP-IRA plans?
In many cases, the cost of contributing for employees is less under a SIMPLE-IRA than it is if the employer sponsors a profit sharing or SEP-IRA plan. In general, the employer must put in the same percentage of compensation for the other employees as he or she contributes for himself or herself, whereas the maximum contribution for an employee is 3% of his or her compensation under a SIMPLE-IRA plan.
How does an employer establish a SIMPLE-IRA plan?
The employer must execute a written plan document that meets the requirements of Internal Revenue Code section 408(p). Normally an employer will do this by either signing the IRS Model Form 5305-SIMPLE or Form 5304-SIMPLE. The employer must also then have each eligible employee establish his or her own SIMPLE Individual Retirement Account (SIMPLE-IRA). A SIMPLE-IRA is similar to a regular IRA but is different because a SIMPLE-IRA may only accept contributions made under a SIMPLE-IRA plan or certain qualifying rollover or transfer contributions.
What Is the Basic Concept of the SIMPLE Retirement Plan?
A SIMPLE is a simplified version of a 401(k) plan or salary- reduction
SEP plan. The basic concept is that an employee/participant will be eligible
to contribute his/her own funds from his/her payroll or bonus, and that the
employer will make matching contributions. Limits exist as to how much the
employee may contribute, and there are limits as to
the matching contribution the employer must make. An employee may elect to
defer an amount not to exceed the amount set forth in the following chart:
|
Tax Year |
Younger Than Age 50 |
Age 50 or Older |
|
2006 |
$10,000 |
$12,500 |
| 2007 | $10,500 | $13,000 |
| 2008 | $10,500 | $13,000 |
An employee is not eligible to defer more than this chart indicates or more than his or her compensation. The amount which an employee defers must be expressed as a percentage of compensation. The employer must match on a dollar-for- dollar basis what the employee has chosen to electively defer, up to 3% of the employee’s compensation. There is a special rule discussed later which allows an employer to set its match at less than 3% (but not less than 1%) if certain rules are met.
A SIMPLE does not permit an employer to make any other type of contributions. An employer is not permitted to make a pro rata contribution (e.g. 8% of compensation) to the eligible employees as permitted with a standard profit sharing plan or a SEP plan.
What employees must an employer cover in order to have a SIMPLE?
In essence, a SIMPLE has a two-year participation requirement. Any employee who was paid at least $5,000 in compensation by the sponsoring employer during each of the preceding two years, and who is reasonably expected to receive at least $5,000 in compensation during the “upcoming” year, must be eligible to participate in the SIMPLE for the upcoming year. Note that under this plan it is the amount of compensation which will determine eligibility and not hours of service or age. Thus, under a SIMPLE, an employee must be eligible to make his or her elective deferrals and also to receive the mandatory employer matching contribution. An employer will be able to choose to exclude nonresident aliens and employees covered under a collective bargaining agreement. Compensation for an employee is defined to be the sum of his or her Form W-2 compensation plus any elective deferral amount. Self-employed individuals can participate in a SIMPLE. Compensation for a self-employed individual is defined to be his or her net earnings without regard to any contribution under the SIMPLE.
Must an employee make an elective deferral each year?
No. The employee has total discretion whether or not to make a contribution each year.
What is the cost to the employer?
The employer will be required to make its matching contributions. SIMPLEs have relatively few government reporting requirements, and therefore, lower administrative costs.
Who Is Responsible to Administer the SIMPLE?
The sponsoring employer is responsible for the SIMPLE administration The
employer may well need to consult with its tax and legal advisor. A
financial institution’s general role is to serve as the depository and not
as the plan administrator.
When must employer contributions Be Made?
Employers must allocate employee’s elective contributions not later than 30 days after the month-end in which they are made. Employer matching contributions must be made by the time its tax returns for the year are filed.
