New Jersey Supplemental Executive Retirement Plan - SERP
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How to fill out Supplemental Executive Retirement Plan - SERP?
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FAQ
There are a variety of possible SERP designs. Most commonly, they are designed either as defined benefit or defined contribution plans. A defined benefit SERP provides a benefit in the form of an annuity at retirement.
In general, a Nonqualified Deferred Compensation Plan refers to a plan in which the executive is deferring his own compensation and a SERP is a plan in which the employer is allocating contributions to the executive. Many plans have a combination of executive and employer contributions.
Understanding SERP The company funds the plan out of its current cash flows or through the funding of a cash-value life insurance policy. The money, and the taxes on it, are deferred. After retiring, the executive can withdraw the money and must pay state and federal taxes on it as ordinary income.
A supplemental executive retirement plan (SERP) is a set of benefits that may be made available to top-level employees in addition to those covered in the company's standard retirement savings plan. A SERP is a form of a deferred-compensation plan. It is not a qualified plan.
SERP withdrawals are taxed as regular income, but taxes on that income are deferred until you start making withdrawals. Much like other tax-deferred retirement plans, SERP funds grow tax-free until retirement. If you withdraw your SERP funds in a lump sum, you'll pay the taxes at all once.
Taxation. Employer contributions to a SERP are included in the executive's income for purposes of FICA and FUTA taxes in the year they become vested. Income taxes, however, are deferred until you begin receiving distributions. SERP withdrawals are taxed as W-2 income in the year received.
When you receive income from your traditional 401(k), 403(b) or 457 salary reduction plans, you'll owe income tax on those amounts. This income, which is produced by the combination of your contributions, any employer contributions and earnings on the contributions, is taxed at your regular ordinary rate.
SERPs are paid out as either one lump sum or as a series of set payments from an annuity, with different tax implications for each method, so choose carefully.