Ch 11: Retirement Plans Flashcards
Designed to provide a minimum floor of retirement income
Social security
What is a qualified plan?
Contributions are made on behalf of the participants. Benefits are tax deferred, and taxable when paid to employee after retirement. Cannot discriminate on who participates.
What is a non qualified plan?
Plans that can discriminate and do not enjoy favorable tax treatment.
Why was ERISA (1974) passed?
Protect the rights of workers covered by employer sponsored plans.
Under ERISA, who must be allowed to enroll?
All employees 21+ and who have been working at least a year. Employees working less than 1000 may be excluded.
Qualified employee plans – what is a defined benefit plan?
Retirement plan in which benefits are fixed in advance. H formula and contributions vary.
Qualified employee plan – defined contribution
Retirement plan in which contributions are fixed in advance and benefits vary, since it’s dependent on how much was contributed to the plan. (401k)
Employee stock ownership plan (ESOP)
A qualified employee benefit plan that gives employees part ownership in the company. Investments = company stock
401k
Allows for salary deferral by an employee. Earliest age to withdraw funds without penalty is 59.5
Tax sheltered annuity (401b)
Retirement plan used. H the employee of a public school system (TSA)
Who uses a Keoge plan?
Sole proprietor or self employed persons
An IRA owner needs to start receiving distributions at what age, and what’s the consequence if not?
70.5 or a 50% penalty
In a 401k, what age will the employee be able to elect a lump sum or periodic contributions?
59.5
Roth IRA
Withdrawn tax free since contributions are not tax deductible.
