Page 186 - Essentials of Payroll: Management and Accounting

Benefits
• Roth IRA. Under this IRA, there are offsetting costs and
benefits. On the one hand, any contribution to the IRA is not
deductible; on the other hand, withdrawals from the account
(including earnings) are not taxable at all, as long as the recipient
1
is at least 59 /2 years old, is disabled, or is made a beneficiary
following the death of the IRA participant, or uses the
money to buy a first-time home. Contributions are limited to
$2,000 per year and can be continued indefinitely, irrespective
of the participant’s age. However, no contribution is allowed
once the participant’s adjusted gross income reaches $160,000
for a joint filer, or $110,000 for a single filer, and will gradual-
ly decline beginning at $150,000 and $95,000, respectively.
There are special rules for transferring funds into a Roth IRA from
any other type of IRA. It is only allowed if the adjusted gross income

of the transferring party is $100,000 or less in the year of transfer (the
same limitation applies to both single and joint filers). Distributions
from the Roth IRA that come from these rolled-over funds will not be
taxable, but only if they have been held in the Roth IRA for at least
five years following the date of transfer.
• Savings incentive match plan for employees (SIMPLE). Under
this IRA format, an employer that has no other retirement
plan and employs fewer than 100 employees can set up IRA
accounts for its employees, into which they can contribute
up to $6,500 per year. The employer commits to make a
matching contribution of up to 3 percent of the employee’s
pay, depending upon how much the employee has chosen to
contribute. The combined employee/employer contribution
to the plan cannot exceed $13,000 per year. The employer
also has the option of reducing its contribution percentage in
two years out of every five consecutive years, or can commit
to a standard 2 percent contribution for all eligible employees,
even if they choose not to contribute to the plan.Vesting in

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