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Key individual tax changes from Trump's 'big beautiful' bill
Current law vs. final legislation
| Current law | Final legislation |
|---|---|
| Standard deduction | |
| $15,000 single; $30,000 married filing jointly for 2025 | $15,750 single; $31,500 married filing jointly for 2025 |
| 'Bonus' deduction for older adults | |
| $1,600 for age 65 and older for 2025; $2,000 unmarried / not surviving spouse for 2025 | $7,600 for age 65 and older; $8,000 for unmarried / not surviving spouse; both from 2025 through 2028 |
| State and local tax deduction (SALT) | |
| $10,000 limit through 2025 | $40,000 limit for 2025; increases by 1% through 2029; reverts to $10,000 in 2030 |
| Child tax credit | |
| Max credit of $2,000 per child through 2025; refundable portion $1,700 for 2025 | Max credit of $2,200 per child; refundable portion $1,700 for 2025 |
| Estate and gift tax exemption | |
| $13.99 million single; $27.98 million married filing jointly for 2025 | $15 million single; $30 million married filing jointly for 2026 |
| Tax on tips | |
| N/A | Deduct up to $25,000 per year from 2025 though 2028 |
| Overtime pay | |
| N/A | Deduct up to $12,500 per taxpayer from 2025 through 2028 |
| Auto loan interest | |
| N/A | Deduct up to $12,500 per taxpayer from 2025 through 2028 |
| Auto loan interest | |
| N/A | Deduct up to $10,000 of annual interest on new loans from 2025 through 2028 |
| Trump Accounts for child savings | |
| N/A | One-time $1,000 credit to account per child born between 2025 through 2028 |
| Charitable deduction for non-itemizers | |
| N/A after 2021 | $1,000 single; $2,000 married filing jointly; permanent after 2025 |
Source: CNBC
In this Article, We Will Discuss:
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The key features and benefits of Supplemental Executive Retirement Plans (SERPs) for Sears Holdings employees.
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The advantages SERPs offer to companies in terms of employee retention and financial management.
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Tax considerations, payment structures, and future contribution limits for SERPs and other retirement plans.
At Sears Holdings, many executives and key personnel are exploring alternatives to traditional 401(k) and Individual Retirement Account (IRA) contributions to enhance their retirement planning efforts. Supplemental Executive Retirement Plans (SERPs) provide a valuable option. These non-qualified deferred compensation plans are particularly advantageous for individuals who have reached the contribution limits imposed by other qualified retirement plans, offering a method to build additional retirement resources.
Identifying SERPs
SERPs stand out because they allow for the growth of retirement savings without immediate taxation. Additionally, these plans have no contribution limits and typically do not have early withdrawal penalties, offering flexibility in strategic retirement planning. Companies like Sears Holdings often fund SERPs through life insurance contracts taken out in the employee's name, with the employee as the beneficiary. This structure simplifies the funding of SERP accounts while helping meet future payment obligations.
Benefits for Sears Holdings Employees
One major benefit for employees is the tax-deferred growth of invested funds, which are not subject to the 10% penalty for withdrawals before age 59½. This aspect is particularly helpful for those who might need access to funds before the standard retirement age, in circumstances such as disability or death, where the plan's benefits are transferred to a designated person. Additionally, participants are not required to contribute personal annual compensation to the plan, preserving their disposable income. Unlike qualified plans like 401(k)s, SERPs are not subject to IRS-imposed contribution limits.
However, it’s important to recognize that SERPs are generally offered to senior executives and are utilized by companies to attract high-caliber talent. Because these plans are not prioritized in the event of company bankruptcy, participants should carefully consider the associated risks.
Company Advantages
For employers, SERPs are advantageous because they are straightforward to administer and do not require IRS approval. Offering additional benefits to key employees can improve retention and loyalty over time. From a financial perspective, companies may benefit from tax deductions when the benefits are eventually paid, and the growth of plan contributions can positively influence financial metrics.
Tax Considerations and Payments
The timing of taxation is a critical element of SERPs. Participants can choose between receiving a lump sum, which could result in significant income during a single year, or opting for annual payments that distribute the tax burden over several years. Working with a financial advisor can help participants effectively plan taxes based on their personal situation and retirement objectives.
Modified Contribution Limits for 2025
In 2025, the 401(k) contribution limit is set at $23,500, increasing to $31,000 for individuals aged 50 and over. Similarly, the IRA contribution limit is set at $7,000, with additional contributions allowed for those in the same age group. These thresholds are significant because they influence the capacity to allocate more resources to a SERP once these limits are met.
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Catch-Up Contributions
Sears Holdings individuals aged 50 and above can contribute an extra $7,500 to their 401(k) and an additional $1,000 to their IRA. These contributions are an important method for increasing retirement savings during the later stages of a career.
(Source:
Fidelity - Catch-Up Contributions
)
In Conclusion
While SERPs present a meaningful option to enhance retirement savings—especially for those who have reached the limits of other plans—they do carry risks. The benefits of deferred taxation, flexibility in contributions, and opportunities for long-term financial preparation must be carefully weighed against potential risks tied to the financial condition of the employer. As with any significant financial decision, consulting a financial advisor can help align retirement strategies with personal goals and circumstances.
How does the Sears Holdings Pension Plan differentiate between normal retirement, early retirement, and late retirement options for Kmart participants? In what ways do these options influence the retirement planning process for employees of Sears Holdings, and what specific considerations should Kmart employees be aware of when choosing one of these retirement paths, particularly in relation to their vested status?
Differentiation of Retirement Options: The Sears Holdings Pension Plan offers distinct options for normal, early, and late retirement. Normal retirement is available at age 65 or after five years of plan participation, whichever is later. Early retirement can be taken from age 55 but before 65, provided the employee is vested, with benefits subject to actuarial reduction unless certain conditions are met (like having at least 90 points, which is a sum of age and years of credited service). Late retirement pertains to any retirement after the normal retirement age, with pensions recalculated to reflect the delay in benefit commencement.
Considering the frozen status of the Sears Holdings Pension Plan, how does this impact the benefits eligibility for Kmart employees, and what implications does it have for their retirement savings strategies? In what ways should current employees factor in this frozen status when evaluating their overall retirement readiness and potential alternatives outside of the company plan?
Impact of Frozen Status: The freezing of the Sears Holdings Pension Plan on January 31, 1996, means that there have been no new accruals of benefits or participants since that date. For Kmart employees, this impacts their benefits eligibility by capping the pension benefits at levels earned up to the freeze date. Employees need to consider this stagnation in benefits when planning for retirement, potentially seeking additional retirement savings avenues to bridge any shortfall.
What are the essential calculations involved in determining the retirement benefits under the Sears Holdings Pension Plan for Kmart employees? Specifically, how do the Career Average Pay and Final Average Pay formulas come into play, and what factors should employees consider when estimating their future retirement payouts?
Essential Calculations for Retirement Benefits: Pension benefits for Kmart employees under the Sears Holdings Pension Plan are calculated using either the Career Average Pay or the Final Average Pay formulas. These calculations take into account an employee's years of credited service and compensation up to the freeze date. Factors like estimated Social Security benefits and specific formulas (such as a deduction based on Social Security benefits under the Final Average Pay formula) play crucial roles in determining the final pension payout.
How can Sears Holdings employees best navigate the process of applying for benefits under the Pension Plan? What specific steps should participants take to ensure their applications are processed correctly, and what important deadlines should they be aware of to avoid any negative consequences on their retirement benefits?
Navigating the Benefits Application Process: To apply for pension benefits, employees must submit a formal application, ideally 30 to 90 days before the intended commencement date. It is crucial to ensure all personal information, including marital status and spouse details, is up-to-date to avoid delays or inaccuracies in benefit processing. Missing application deadlines can lead to postponed benefit payments or unwanted default options.
In what situations can Kmart employees expect to receive a Deferred Vested Pension, and how is the calculation for this pension affected by their previous employment and vesting service? Employees should be aware of the important factors influencing their eligibility and the steps necessary to maintain their retirement benefits after leaving the company.
Eligibility and Calculation for Deferred Vested Pension: A Deferred Vested Pension is available to employees who leave the company after becoming vested but prior to qualifying for retirement. The calculation mirrors that of a normal retirement pension, with possible early commencement reductions. Understanding the timing of benefit commencement and the potential reductions for early start is vital for planning.
How does the Sears Holdings Pension Plan address tax considerations for employees receiving both monthly payments and lump sum payments upon retirement? What tax implications should Kmart participants be aware of, particularly in relation to IRS rules for distributions and potential penalties for early withdrawal?
Tax Implications of Pension Receipt: Pension payments, whether monthly or lump sum, are subject to federal taxes. Monthly benefits are taxed as ordinary income, while lump sums might be eligible for special tax treatments or rollover options to defer taxes. It’s important for Kmart employees to consider these implications and possibly consult with a tax advisor to optimize tax liability.
What are the rights and protections afforded to Kmart participants under the Employee Retirement Income Security Act (ERISA) as they navigate their retirement benefits with the Sears Holdings Pension Plan? How can employees leverage these rights to ensure they are receiving all the benefits to which they are entitled?
ERISA Rights and Protections: Under ERISA, Kmart employees are entitled to certain rights including the ability to appeal denied benefits, access to plan information, and assurances of fair and equitable treatment of their benefits. Leveraging these protections ensures that employees receive all due benefits.
What steps should Kmart employees take to update their personal information to ensure they continue receiving their benefits without interruption, especially in the context of missing participants or uncashed checks? What resources and contacts at Sears Holdings are available to assist with these updates?
Updating Personal Information: Maintaining accurate personal information with the pension plan is crucial for uninterrupted benefit payments. Employees should promptly update changes such as address, marital status, or beneficiaries to prevent issues with benefit distributions or lost checks.
How does the process of transferring between affiliated employers impact pension benefits for Kmart employees under the Sears Holdings Pension Plan? What considerations should be taken into account concerning Credited Service and Vesting Service during such transfers, and how can employees ensure they do not lose any entitled benefits?
Impact of Transfers Between Affiliated Employers: Transferring between Sears Holdings’ affiliated employers can affect pension benefits differently depending on whether the employer participates in the pension plan. It's essential to understand how such transfers impact credited and vesting service accruals.
For Kmart employees seeking more information about their benefits under the Sears Holdings Pension Plan, what is the best way to contact company representatives? How can they effectively communicate their questions or concerns to ensure they receive accurate and timely information regarding their retirement benefits?
Contacting Plan Representatives: Kmart employees seeking clarity on their pension benefits should contact the Sears Holdings Pension Service Center. Effective communication, including prepared questions and necessary documentation, will aid in obtaining accurate and comprehensive information.
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