Ch. 10 - Retirement Plans Flashcards
401(k) Plans
The 401(k) Plan is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes are not paid until the money is withdrawn from the account.
403(b) Plans
The 403(b) Plan is a retirement plan for certain employees of public schools, employees of specific tax-exempt organizations, and certain ministers.
Defined Benefit Plans
Defined benefit plans are pension plans under which a specific benefit formula determines benefits.
Defined Contribution Plans
Defined contribution plans are a tax-qualified retirement plan in which annual contributions are determined by a formula set forth in the plan. Benefits paid to a participant vary with the amount of contributions made on the participant’s behalf and the length of service under the plan.
Employee Retirement Income Security Act of 1974 (EIRSA):
EIRSA (The Employee Retirement Income Security Act of 1974) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.
Keogh Plans
Keogh Plans are designed to fund the retirement of self-employed individuals. The name is derived from the Keogh Act (HR-10) author, under which contributions to such plans are given favorable tax treatment.
Nonqualified Withdrawal
If a withdrawal is taken without meeting the above criteria and the amount of the withdrawal exceeds the total amount contributed, it is a nonqualified withdrawal. The earnings from the contributions become taxable.
Profit-Sharing Plans
Profit-sharing plans are any plans whereby a portion of a company’s profits is set aside for distribution to employees who qualify under the plan.
Qualified Plan
A qualified plan is a retirement or employee compensation plan established and maintained by an employer that meets specific guidelines spelled out by the IRS and consequently receives favorable tax treatment.
Qualified Withdrawals
Qualified Withdrawals provide the tax-free distribution of earnings from a Roth IRA. To be a qualified withdrawal, the funds must have been held in the account for a minimum of five years; and if the withdrawal occurs for one of the following reasons, no portion of the withdrawal is subject to tax; permanent disability; made by a beneficiary after the owner’s death; or used to buy, build or rebuild your first home ( $10,000 maximum ).
Rollovers
Rollovers are an individual retirement account established with funds transferred from another IRA or qualified retirement plan that the owner had terminated.
Roth IRA
Roth IRA is an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59 1/2 are tax-free.
Savings Incentive Match Plan for Employees
Savings Incentive Match Plan for Employees (SIMPLE) is a qualified employer retirement plan that allows small employers to set up tax-favored retirement savings plans for their employees.
Simplified Employee Pension
Simplified Employee Pension (SEP) is a type of qualified retirement plan under which the employer contributes to an individual retirement account set up and maintained by the employee.
Traditional IRA
Traditional IRA is an individual qualified retirement account through which eligible individuals accumulate tax-deferred income up to a certain amount each year, depending on the person’s tax bracket.
