The California Legal Blog

Hymes, Schreiber & Walden, LLP

The Corporate Retirement Plan

This is part of fourth section of  Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question” regarding the corporate retirement plan.

A corporate retirement plan may include a pension plan, profit-sharing plan or combination of both. A pension plan is  “established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits to his employees, or their beneficiaries, over a period of years (usually for life) after retirement.” (Blacks Law Dictionary)

A profit-sharing plan is established and maintained by an employer to provide for the participation in the profits of the company by the employees or their beneficiaries. A corporate retirement plan may be qualified or non-qualified in order to take advantage of the tax benefits available. If the corporate retirement plan is qualified according to § 401, special tax status attaches. First, the amount of the contribution will be deductible to the corporation under §404(a)(1) for pension plans and § 404(a)(3) for profit-sharing plans. Second, “Any amount actually distributed to any distributed by any employees’ trust described in section 401(a) which is exempt from tax under section 501(a) shall be taxable to the distributee, in the taxable year of the distributee in which distributed”. (§ 402 Supp., 2000) Therefore, § 402 provides for tax deferral until the corporate retirement plan distributes to the beneficiary. For example, if a corporation makes a $10,000 contribution to a corporate retirement plan in the name of the individual employee, the corporation will be allowed to deduct this amount from taxable income and the individual will not be taxed on this amount in the year of the contribution! The contribution is placed into the corporate retirement account where it appreciates tax-deferred; the individual will be taxed on the amount when the retirement account distributes its corpus to the individual participant.

For the noncorporate taxpayer, usually a member of a union pension plan, the only deductible retirement contribution available would be an Individual Retirement Account (IRA). The deductibility of IRA contributions is limited when the individual is an active participant in a retirement plan maintained by an employer. For such individuals the IRA contribution is phased-out at certain AGI levels ($31,000-$41,000 for 1999).

Therefore, the noncorporate taxpayer may not receive the current tax benefit of the contribution because the contribution will be made with after-tax earnings. The corporate retirement plan has no comparable limitation.

* For specific inquiries regarding a business legal matter that you may have, you are contact our Business Lawyer in Los Angeles.

Enhanced by Zemanta
  • Click to share on Twitter (Opens in new window)
  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)
  • Click to share on Reddit (Opens in new window)
  • Click to email this to a friend (Opens in new window)
  • Click to print (Opens in new window)
Published in:
  • Business Organization and Formation
  • Pension Planning
  • Retirement Planning
  • Tax Planning
on January 20, 2011 at 10:04 pm  Leave a Comment  
Tags: Adjusted Gross Income, Business Attorney, Business Disputes, Business Lawyer Los Angeles, Corporate Retirement Plan, Employment, Individual Retirement Account, Pension, Profit sharing, Retirement, Tax, Tax deduction
  • Hymes, Schreiber & Walden, LLP
  • Visit Our Website

    www.ahslawyers.com

    Estate Planning Blog

  • New posts by email:


  • Pages

    • About the Firm
    • Awards
    • Contact Us
    • Legal Disclaimer
    • Office Locations
  • Categories

    • Awards
    • Business Disputes
    • Business Organization and Formation
    • Business Ownership
    • Business Succession Planning
    • Contract Law
    • COVID-19
    • Education
    • Elder Law
    • Entertainment Law
    • Estate Planning
    • Estate Tax
    • Firm Name Change
    • Introduction
    • IRA
    • Irrevocable Insurance Trust
    • Landlord Tenant Law
    • Life Insurance Trust
    • Living Trusts
    • Mobilehome Park Law
    • Mobilehome Residency Law
    • Negotiation
    • Pension Planning
    • Probate Law
    • Real Estate Law
    • Retirement Planning
    • Revocable Living Trust
    • Tax Law Updates
    • Tax Planning
    • Trust Law
    • Wills
  • Archives

    • March 2020
    • September 2018
    • August 2018
    • April 2018
    • January 2018
    • August 2017
    • April 2017
    • March 2017
    • January 2017
    • December 2016
    • October 2016
    • November 2015
    • July 2015
    • March 2015
    • February 2015
    • January 2015
    • November 2014
    • August 2014
    • June 2014
    • August 2013
    • February 2013
    • January 2013
    • November 2011
    • October 2011
    • September 2011
    • August 2011
    • July 2011
    • June 2011
    • May 2011
    • April 2011
    • March 2011
    • February 2011
    • January 2011
    • December 2010
    • November 2010
    • October 2010
    • September 2010
    • August 2010

  • Twitter Updates

    • All of us at Hymes, Schreiber & Walden, LLP hope you, your families and loved ones are safe and healthy during thes… twitter.com/i/web/status/1… 10 months ago
    • RT @LALawyerMag: What right does a person have to bring a service dog, support peacock, or pet on a plane, a train, or into a taxi? The ans… 2 years ago
    Follow @HSWLegal
  • RSS Feed

    • RSS - Posts
  • Tag Cloud

    Accounting Adjusted Gross Income Anker Hymes & Schreiber Anker Reed HSC Anker Reed Hymes Schreiber & Cohen Asset attorney Attorney Douglas Schreiber beneficiary designation Business Business Attorney Business Disputes Business Formation Business Law Firm Business Lawyer Business Lawyer Los Angeles Business Lawyers CA California Corporation Death Douglas Schreiber Doug Schreiber Estate planning Estate Planning Attorney Estate Planning Attorney Los Angeles Estate Planning Lawyer Estate Taxes Estate tax in the United States Generation-skipping transfer tax Gift tax Income tax Inheritance tax Internal Revenue Code Internal Revenue Service Irrevocable Life Insurance Trust Itemized deduction KC Marie Knox Larry Hymes Law law firm lawyer life insurance trust Limited liability Limited liability company Living trust LLC Los Angeles Negotiation probate attorney Provisors real estate Real Estate Attorney San Fernando Valley Santa Clarita Small business Sole proprietorship Start Up Tax Taxable income Tax Advantgages Taxation Tax Attorney Tax Attorney Los Angeles Tax deduction Tax Law Updates Tax Lawyer Tax Planning Attorney Tax rate Trust Attorney TurboTax United States Valencia Will Attorney Woodland Hills

  • Awards Business Disputes Business Organization and Formation Business Ownership Business Succession Planning Contract Law Education Elder Law Entertainment Law Estate Planning Estate Tax Firm Name Change Introduction IRA Irrevocable Insurance Trust Landlord Tenant Law Life Insurance Trust Living Trusts Mobilehome Park Law Mobilehome Residency Law Negotiation Pension Planning Probate Law Real Estate Law Retirement Planning Revocable Living Trust Tax Law Updates Tax Planning Trust Law Wills

Blog at WordPress.com.RSS 2.0Comments RSS 2.0

loading Cancel
Post was not sent - check your email addresses!
Email check failed, please try again
Sorry, your blog cannot share posts by email.