Page 182 - Essentials of Payroll: Management and Accounting

Benefits
the plan). However, there is no guarantee that the amount of
the actual benefit paid will match the estimate upon which
the contributions were based, since the return on invested
amounts in the plan may vary from the estimated level at the
time when the contributions were made.
A plan that can fall into either the defined contribution or defined

benefit plan categories is the Keogh plan. It is available to self-employed
people, partnerships, and owners of unincorporated businesses. When
created, a Keogh plan can be defined as either a defined contribution or
defined benefit plan. Under either approach, the contribution level is
restricted to the lesser of 25 percent of taxable annual compensation (or
20 percent for the owner) or $35,000. It is not allowable to issue loans
against a Keogh plan, but distributions from it can be rolled over into an

IRA. Premature withdrawal penalties are similar to those for an IRA.

Nonqualified Retirement Plans

All the preceding plans fall under the category of qualified retirement
plans. However, if a company does not choose to follow ERISA and
IRS guidelines, it can create a nonqualified retirement plan. By doing so,
it can discriminate in favor of paying key personnel more than other
participants, or to the exclusion of other employees. All contributions
to the plan and any earnings by the deposited funds will remain untaxed
as long as they stay within the trust. The downside of this approach is

that any contribution made to the plan by the company cannot be
recorded as a taxable expense until the contribution is eventually paid
out of the trust into which it was deposited and to the plan participant
(which may be years in the future). Proceeds from the plan are taxable as
ordinary income to the recipient and cannot be rolled over into an IRA.
An example of a nonqualified retirement plan is the 457 plan,
which allows participants to defer up to $8,500 of their wages per year.

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