1.8 Employer-sponsored retirement plans

Question 1

Defined Benefit (DB) “pension plan”

Answer 1

defined FUTURE retirement benefit
formula-based “pension plan”

EMPLOYER ASSUMES ALL INVESTMENT RISK:
need to make sure they save enough to meet future benefit promises

many db plans underfunded

Question 2

Defined Contribution Plan

Answer 2

only current contribution is promised - NO FUTURE BENEFIT

EMPLOYEE* ASSUMES ALL INVESTMENT RISK

Question 3

DEFINED BENEFIT PLAN

Answer 3

EMPLOYER ASSUMES INVESTMENT RISK

Question 4

Types of defined contribution plans

Answer 4

401k-corporate

403(b) - not for profit (also known as a 501(c) 3 Organization

457(b) - government

contributions must be made from paycheck***

Question 5

Traditional 401k vs Roth 401k

Answer 5

Traditional 401k: before tax contributions (via payroll REDUCTION) **employer matches

Roth 401k: after tax contributions (via payroll DEDUCTION) employer DOES NOT MATCH

Question 6

2023 CONTRIBUTIONS (INDIVIDUAL - NOT INCLUDING EMPLOYER MATCHES) FOR
-401K,403B, ETC

Answer 6

UNDER AGE OF 50 - $22,500
50+ - $30,00

($7,500 CATCH UP)

Question 7

Retirement plans: Self-employed / small Business

Answer 7

SEP (simplified employee pension)

Question 8

A retirement plan that allows the employee to make pre-tax contribution (within certain limit(s), provides for tax deferral of earnings, and is available for employees of public school systems and certain tax-exempt organization

Answer 8

403(b)

Question 9

Section 457 plans

Answer 9

Section 457B plan is the deferred compensation plan set up under section 457 of the tax code.
 This plan may be used by employees of a state, political subdivision of a state, and any agency or instrumentality of a state.

Employees can defer compensation in a 457 plan in the amount deferred is not reportable for tax purposes .this means the employee receives a deduction each year for the amount deferred..

Question 10

Important facts to know about 457 plane

Answer 10

These plans are exempt from Ursa non-governmental plans must be unfunded to qualify for tax benefits how government plans must be funded.
These plans are generally not required to follow the nondiscrimination rules of other retirement plans .

Question 11

A basic difference between a section 457 plan establish on behalf of a governmental entity, and one established by a private tax exempt organization is that:

Answer 11

A governmental plan must hold its assets in a trust or custodial account for the benefit of individual participants

Question 12

A 457 plan

Answer 12

A type of deferred compensation plan for employees of state and local municipalities

Question 13

Defined contribution plans

Answer 13

Those that offer no specific end result but instead focus on current tax deductible contributions

Question 14

Defined benefit plan

Answer 14

 Does a promise, a specific retirement benefit, but do not specify the level of current contributions are defined benefit plans

Question 15

Contributory plan

Answer 15

 Both employer and employee make contributions to the account

Question 16

Non-contributory plans

Answer 16

 Only employer makes contributions 

Question 17

True or false unlike an annuity, payout or life insurance premium contributions to a defined benefit plan or not affected by the participants sex

Answer 17

True

Question 18

🚨Test, topic, alert🚨employer contributions to a defined benefit were defined contribution pension plans for mandatory although profit-sharing plans and 401(k) plans or technically defined contribution plans. They are not pension plans in the employer contributions are not mandatory in all cases allowable employer contributions are 100% deductible to the Corporation. There is no tax navigation to the employee until withdraw.

Question 19

Profit-sharing plans

Answer 19

Established by an employer, which allows employees to participate in business profits profit-sharing plans are popular because they offer employers the greatest amount of contribution flexibility the ability to skip contribution during years of low profit, appeals to corporations with unpredictable cash flow they’re relatively easy to install administer and communicate to employees

Question 20

🚨Test topic, alert🚨one of the benefits of investing through a 401(k) plan is that it takes a vantage of dollar cost averaging a technique described in unit eight which always results in a lower cost per share and a fluctuating market