New tax on excess distributions from retirement plans requires revised planning

Article Abstract:

The Tax Reform Act of 1986 has added a new Section, 4981A. This section imposes a 15 percent excise tax on excess distributions from qualified employer plans, annuity contracts, and individual retirement accounts. This new provision will affect income and estate tax planning for individuals who receive benefits from qualified plans. The taxes will be manageable for most plan participants. Planning options that can reduce the effect of the distributions tax include extending the period of distributions, combining lump-sum and installment payments, and rolling lump sum payments over to another plan.

Distribution (Economics), Retirement income

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Allowable contribution to a defined contribution Keogh plan clarified by new law

Article Abstract:

The Tax Reform Act of 1986 clarifies the maximum contribution that can be made to a self-employment retirement plan. Under the new law, the limits on employee contributions to a defined contribution plans (such as Keogh plans) are set at 25 percent of compensation or $30,000 per year, whichever is less. Contributions to money-purchase plans, profit-sharing plans, and other forms of pension trusts are explained under the new law, and equations are given for calculating the related deductions from such investments.

Finance, taxation, & monetary policy, Deferred compensation, Deferred income (Business), Deferred income, Keogh plans

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When can employers retrieve excess assets from defined benefit plans?

Article Abstract:

Access to excess assets in employer-sponsored pension plans is limited. If the plan provides for reversions, employers can gain access to excess assets upon plan terminations. The types of terminations, the calculation of reversions, and the taxation of reversions are discussed.

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