Page 183 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
It is restricted to the use of government and tax-exempt entities.
Distributions from the plan are usually at retirement, but can also be at
the point of the employee’s departure from the organization, or a with-
drawal can be requested on an emergency basis. A key difference

between the 457 plan and the qualified retirement plans is that the
funds deposited in the trust by the employer can be claimed by credi-
tors, unless the employer is a government entity.

Personal Retirement Accounts

An employer may not want to deal with the complex reporting
requirements of a qualified retirement plan, nor set up a nonqualified
plan. A very simple alternative is the personal retirement account (PRA),

of which the most common is the individual retirement arrangement.
The primary types of PRAs are the individual retirement arrangement
and the simplified employee pension.
Individual Retirement Account (IRA). This is a savings account that is
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set up for the specific use of one person who is less than 70 /2 years
old. Contributions to an IRA are limited to the lesser of $2,000 per
year or a person’s total taxable compensation (which can be wages, tips,
bonuses, commissions, and taxable alimony). There is no required min-
imum payment into an IRA. Contributions to an IRA are not tax

deductible if the contributor also participates in an employer’s qualified
retirement plan and his or her adjusted gross income is greater than
$42,000 if a single filer, $62,000 if filing a joint return, or $10,000 if
married and filing a separate return. The deductible amount begins to
decline at a point $10,000 lower than all of these values. If a working
spouse is not covered by an employer’s qualified retirement plan, then
he or she may make a fully deductible contribution of up to $2,000 per

year to the IRA, even if the other spouse has such coverage. This
deduction is eliminated when a couple’s adjusted gross income reaches

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