Chapter 9 Retirement

Question 1

2 Categories of Retirement Plans

Answer 1

1. Qualified

2. Non Qualified

Question 2

Qualified

Answer 2

meet govt requirements and receive tax benefits

Question 3

Non-Qualified

Answer 3

Do not meet govt requirements and and do not receive tax benefits

Question 4

In order for retirement plans to be approved by IRS for favorable tax treatment, they must fulfill basic requirement categories of:

Answer 4

• Participation
• Coverage
• Vesting
• Funding
• Contributions

Question 5

ERISA

Answer 5

Employee Retirement Income Security Act of 1974

protects employees from possible loopholes in plans

allows them to receive contributions for retirement

Question 6

Defined Contribution Plans

Answer 6

addresses funds that are literally deposited into employee account.

tax qualified, contributions determined by a formula

Question 7

Profit Sharing Plans

Answer 7

allows employee to participate in companies profits through a formula maintained by employer.

employee does not have to make yearly contributions
but should so it can qualify for favorable tax treatment

Question 8

Stock Bonus Plan Benefits

Answer 8

delivered as company stock instead of profits

Question 9

Money Purchase Plans

Answer 9

depend on fixed contributions.

Question 10

Defined Benefit Plans

Answer 10

pension plans to provide future benefits that are tied to employees years of service, amount of compensation or both.

lesser of 100% of last 3 years salary or $210,000

Question 11

401K

Answer 11

take money as usual in paycheck or defer a specific amount. employer typically matches. amounts deferred not included in gross income, not taxable until distribution

maximum annual defer amount - $18,000
$24,000 for those 50 or older

Question 12

403B

Answer 12

Tax sheltered annuity plan for non profits

Question 13

Section 457 Plans

Answer 13

Deferred compensation plan for employees of state/local govts. amounts deferred not included in gross income until received or made available.

allowable deferment: 33 1/3% or $18,000

Question 14

Keogh Plan

Answer 14

qualified plan, allows unincorporated business owners to participate in plan as employees.

for self employed, contributions have special tax treatment

Question 15

Who can open Traditional IRA

Answer 15

anyone under age 70 1/2

Question 16

Traditional IRA

Answer 16

Individual retirement account. eligible people accumulate tax deferred income up to a certain amount each year, depending on tax bracket.

contributions not taxable as income
can contribute $5500 a year
50+ years old can contribute an extra $1,000
withdrawals must start April 1st of year in which person turns 70 1/2
minimum amount must be withdrawn each year

Question 17

Roth IRA

Answer 17

Taxed as income before contribution is made. at time of payout it is tax free.

no age limits
withdraws are qualified or non qualified
distributions are not mandatory and can be inherited
in non qualified withdrawal earnings are subject to tax

Question 18

Rollover IRA

Answer 18

IRA whose funds have been distributed and reinvested in another IRA within 60 days of distribution

Question 19

Simplified Employee Pension Plan

Answer 19

SEP

qualified plan in which employer contributes to an individual retirement account set up by employee

Question 20

Spousal IRA’s

Answer 20

an account that people eligible to set up IRA’s for themselves can set up jointly with non working spouse

Question 21

Vesting

Answer 21

Right of employees to retain all or part of annuities purchased by employers contributions on their behalf or in some plans to receive cash payments or equivalent value on termination of employment after certain conditions have been met.