According to the Internal Revenue Service, recent tax law changes have made it easier than ever to establish a retirement plan. The changes include: higher contribution limits so employees and employers can set aside larger amounts for retirement; “catch-up” rules that allow employees aged 50 and over to set aside an additional $500—$1,000 for 2002, depending on the type of plan; tax credit for small employers that would enable them to claim a tax credit for part of the ordinary and necessary costs of starting certain types of plans; and tax credit for certain low- and moderate-income individuals who make contributions to their plans. The credit rate can be as low as 10 percent or as high as 50 percent, depending on the participant’s adjusted gross income.

RETIREE SUBSISTENCE NEEDS

IRS Employee Plans (EP) Director, Carol D. Gold, said that although most workers can look forward to Social Security payments in their retirement years, Social Security was never intended to be a retiree’s sole source of income. Gold talked about the importance of retirement plans to American workers on the Tax Talk Today webcast on Aug. 13, 2002. She noted that the average monthly Social Security check is about $800, an amount that is hardly enough to meet the basic subsistence needs of most retirees.

Gold said that only about 20 percent of small employers currently provide some type of retirement savings program for their employees. She said that this is alarming because these businesses employ over 40 percent of employees in the workforce. A common misconception is that committing to and maintaining a retirement plan is both expensive and complex.

However, Gold pointed out that some alternatives, such as establishing employee individual retirement accounts, are free and have relatively few filing requirements. Admitting that some plans can be complex, Gold added that the IRS has been trying to provide as much information as possible to consumers. Part of the complexity arises from all the tax law changes that have occurred in the pension area.

Nevertheless, many of the changes from the Economic Growth and Tax Relief Act of 2001 (EGTRRA) (P.L. 107-16) were beneficial for employers and employees. Gold said that over 12,000 subscribers are already receiving their electronic copy of the Employee Plans News, a quarterly newsletter filled with the latest legislative developments and administrative guidance on employee plans.

EP CARES

Gold added that, given the complexity of some plans, the IRS recognizes that mistakes do happen. Gold said that the Employee Plans Compliance Resolution System (EPCRS, which she pronounced “EP Cares”) is an effective, self-correction program that enables participants to stay in voluntary compliance with the rules and regulations.

Gold said that, since the restructuring of the Tax Exempt and Government Entities (TE/GE) Division required by the IRS Restructuring and Reform Act of 1998 (RRA98) (P.L. 105-206), she believes that EP is delivering on its mission to help consumers understand and comply with applicable tax laws.

MORE INFORMATION

To view the Tax Talk Today webcast entitled “Advising Clients on Retirement Plans,” register at the Tax Talk Today website at: www.taxtalktoday.tv. Viewers must have Real Player or Windows Media Player installed on their computer to watch the programs.

Programs are available for viewing within 24 hours from their initial show schedule and remain available for viewing 24 hours per day for 12 months. Practitioners can earn Continuing Professional Education credits by watching Tax Talk Today programs by purchasing the CPE course online. Tax Talk Today programs are sponsored in part by the IRS.