21-104 21-104 . . . Supplemental Executive Retirement Plan which permits eligible management and highly-compensated employees to receive benefits that will compensate them for limitations imposed by Sections 401(a)(17), 401(k), 401(m) and 402(g) of Internal Revenue Code on salary deferrals and matching contributions under 401(k) plan
Puerto Rico Supplemental Retirement Plan
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US-CC-21-104
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In conclusion, Puerto Rico offers a range of retirement options, with easy access to beaches, a relaxed lifestyle and vibrant culture. Retirees can enjoy a tropical climate all year round and significant tax incentives but should be prepared for language and infrastructure barriers.
The Employee Retirement Income Security Act (ERISA) covers two types of retirement plans: defined benefit plans and defined contribution plans.
Housing and healthcare costs are generally lower than in many other locations. Tax benefits: Puerto Rico offers significant tax incentives for retirees, including lower local taxes, a 0 percent tax rate on capital gains, and federal income tax exemptions for qualifying residents.
?Dual-qualified? plans have U.S. domestic trusts that cover Puerto Rican employees and qualify under both the Puerto Rico Code and the Internal Revenue Code to provide the Puerto Rican participants with favorable tax benefits.
Supplemental contributions Type of limit2023403b under age 50$22,500403b age 50 and over$30,000Compensation limit (employer's matched retirement contributions are limited to matches made on this amount of salary)$330,000
Of importance for employers with dual-qualified plans, the IRS' limits for elective deferrals applicable to participants in a dual-qualified plan, or to federal government employees, is $22,500, pursuant to IRS' notice of limits applicable to 2023.
The basic limit on elective deferrals is $22,500 in 2023, $20,500 in 2022, $19,500 in 2020 and 2021, and $19,000 in 2019, or 100% of the employee's compensation, whichever is less. The elective deferral limit for SIMPLE plans is 100% of compensation or $15,500 in 2023, $14,000 in 2022, and $13,500 in 2020 and 2021.
Withdrawals from IRAs, 401(k)s, and other tax-deferred retirement funds in the US are not recognized under Puerto Rico Act 22. Thus, moving to the island won't reduce the distribution tax. The same applies to Social Security benefits and other pension payments.