4 Tips for Giving Your Business Retirement Plan a Check-Up; Before the IRS Does!
by Caron_Beesley, Community Moderator
- Created: July 15, 2010, 4:37 am
- Updated: March 28, 2013, 3:31 pm
When you think about retirement plans, you do;t tend to think IRS. But if your business operates a retirement plan for its employees then the IRS, and of course your employees, expect that you keep it in good shape and optimized for the best financial return.
Giving your business retirement plan a check-up, whether i-s a 401(k), IRA, SEP, or 403(k) can also help you save time, money and paperwork- as well as increase tax return accuracy. Some of the common mistakes that the IRS looks-out for in retirement plan examinations include:
- Not covering the proper employees
- Not giving employees required information
- Not depositing employee deferrals in a timely fashion
- Not following the terms of the plan document
- Not limiting employee deferrals and employer contributions to the proper maximum limits
All these errors can impact the tax benefits of operating a business retirement plan, and expose you to audit and penalties, so i's a good idea to continuously monitor and review your plan. Here are some tips from the IRS for keeping your plan compliant, and fixing errors should they occur.
1. Watch for Law Changes
Tax law is changing constantly. I's really worth talking to your benefits professional or tax advisor about'when and wha' to change in your plan throughout the business year. A retirement progra's advisor may also be able to advise and/or provide plan review or auditing services.
2. Perform a Periodic Review of your Business Retirement Plan
Errors in a plan brought on by changes in your work force and its salary deferral patterns are easier and cheaper to fix when they are small and have not been allowed to continue over a long period of time.
The IRS provides a range of tools that can help you maintain your plan, protect participant benefits, and help you detect and correct any errors you may have already made.
One of my favorites is this online resource' the IRS Retirement Plan Navigator. The tool is a great resource for finding and comparing the retirement plan that is right for your business, but it also features retirement plan check-lists that can help you stay ahead of the compliance curve and maintain and correct your plan, as needed. Just click on the'Maintain a PlanSIMPLE IRA Plan Checklist).
Based on your answers to some reasonably straightforward Yes/No questions, such as - Were employee salary deferral contributions deposited to employees SIMPLE IRA's after withholding from the employees' salary? - you can get a quick sense of whether you are meeting some of the basic requirements in the operation of your business's retirement plan.
Answering yes to all 10 checklist questions should indicate that your plan is in good shape, but the IRS recommends that you share your answers with your benefits professional or tax advisor to be sure.
3. Understand Self-Service (and other) Plan Fixes
If you've run through the IRS retirement plan check-list and think you've made an error in administering your plan or have any doubt about your compliance, you can correct the plan (and retain your all-important tax benefits) - sometimes without having to contact the IRS.
Follow the Correct a Plan link in the IRS Retirement Plan Navigator and click on the Fix-It guide appropriate to your plan. While the fix-it process isn't nearly as automated as it could be, the IRS does offer reasonably straightforward guidance on how to find, fix and avoid common plan management mistakes.
If you need to correct an error, the IRS's Employee Plans Compliance Resolution System (EPCRS) offers three correction program options, that help you correct errors (depending on which stage of discovery you are at) and retain your tax benefits:
a) The Self-Correction Program - Lets you make corrections without contacting the IRS, within two years of the error occurring. Tax benefits are also maintained.
b) The Voluntary Correction Program - Helps you preserve the tax benefit of a properly maintained retirement plan by volunteering information to the IRS (prior to an audit) about errors, and paying a fee. This program is used if you don't want to self-correct or cannot self-correct your error(s).
c) The Audit Closing Agreement Program (Audit CAP) - If you are under an audit and your retirement plan comes under scrutiny for errors you can preserve your tax benefits by paying a sanction.
4. Get Retirement News for Employers Delivered to your Inbox
The IRS publishes a quarterly publication with plain language information about retirement plans for employers and business owners (including new rules, useful publications, seminars, etc.). To subscribe, click here or go to www.irs.gov/ep and select Newsletters.
- Finding and Managing the Right Retirement Plan for Your Small Business
- Employee Benefit Plans: What's Law and What's Optional
- Business.gov Employee Benefits Guide - Helps employers understand what they need to do to supply employee benefits required by law, as well as steps they need to take to comply with regulations covering optional employee benefit plans.
- Employee Benefits: Requirements for Plan Administrators and Fiduciaries - This guide from Business.gov helps employee benefit plan administrators and fiduciaries comply with federal laws and regulations.
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General small business tips and tricks.