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Further, even if additional credits to a participant's account under an account balance plan are denominated as income and do not exceed the permissible amount, they will not be treated as income exempt from FICA taxation if the amounts with respect to which they purport to be income have not actually been taken into account for FICA tax purposes.
An account balance plan establishes a separate account for each employee, with the employer contributing a specific amount (usually based on a percentage of pay) to each account.
Pursuant to the property settlement incorporated into their divorce judgment, A transferred to B (1) one third of the nonstatutory stock options; (2) the right to receive deferred compensation payments under the account balance plan based on 75% of A's account balance under the plan; and (3) the right to receive a single-sum payment of $25 under the other deferred compensation plan on A's termination of employment.
For an account balance plan, deferrals and earnings are credited to an account in the employee's name.
Although the regulations generally require the benefit in an account balance plan to be based on the account's balance, Regs.
For example, if an account plan has several distribution options, the plan may be treated as an account balance plan and, therefore, a reasonable FICA amount may be calculated, if the options are actuarially equivalent.
An account balance plan is a plan that credits an income amount equal to the original amount deferred in periods subsequent to the deferral period.
A plan will be deemed an account balance plan if under the terms of the plan, a principal amount (or amounts) is credited to an individual account for an employee, the income attributable to each principal amount is credited or debited to the individual account, and the benefits payable to the employee are based solely on the balance credited to the individual account.
From the sponsor's perspective, the account balance plan is similar to a defined benefit, career pay pension plan; participants' benefits are based on compensation earned during each year of their career.
Account balance plans: The regulations describe two alternative methods for attributing compensation under account balance plans.
That regulation aggregates deferred compensation arrangements of the same one of eight "types," that is, elective deferrals to account balance plans, nonelective deferrals to account balance plans, nonaccount balance plans, separation pay plans, in-kind benefits and reimbursements, split-dollar life insurance arrangements, modified foreign earned income arrangements, and stock rights plans.
You can assist your clients in determining the RMD by annually requesting year-end balances for IRAs and other account balance plans.