Ch. 3 wealth building/college Flashcards
401 k
retirement plans that companies offer where money grows tax-deferred
403 b
retirement plan just like 401 k except offered by non-profit organizations
457 Plan
non-qualified, deferred retirement plan for tax-exempt government agencies
529 Plan
tax-deferred college savings plan, usually sponsored by the state
custodian
one responsible for an in account in someone else’s name
Direct Transfer
movement of tax-deferred retirement plan money from one plan to another
ESA
after-tax college fund that that grows tax-free, eligibility is determined by parent’s income
IRA
tax-deferred arrangement for people with earned incomes; not taxed until money is withdrawn
Pre-Paid Tuition
paying for college ahead of time by accumulating units of tuition
Rollover
movement of funds from a tax-deferred retirement plan to another
Roth IRA
retirement account funded with after-tax dollars & it grows tax-free
SEPP
pension plan where employee & employer contribute to individual retirement account
tax-favored dollars
money working for you tax-deferred/tax-free in a retirement plan
UGMA
legislation that provides a tax-effective way of transferring property to a minor without trusts/guardian restrictions
UTMA
similar to UGMA but extends to include real estate, paintings, royalties, & patents
What type of retirement plan could a self-employed person use?
SEPP
What should you do with your retirement accounts when you leave a company?
direct transfer
What are advantages of a Roth IRA?
everyone with earned income is eligible, an after-tax IRA that grows tax-free, more choices, higher bracket of retirement, tons of flexibility, no taxes when cashed out
What is baby step 4 and why do you have to have an emergency fund fully funded before this step?
15% in retirement plans; its a fallback
List some ways to avoid student loan debt without a college fund?
job, scholarship, money market mutual funds
Explain the Rule of 72.
a way to calculate the length of time it would take to double a sum of money. divide 72 by the interest rate
What does IRA stand for?
Individual Retirement Arrangement
What does SEPP stand for?
Simplified Employee Pension Plan
As of 2008. what is the maximum annual contribution to a Roth IRA?
$5,000
IRA is not a type of investment at a bank. What is it?
The tax treatment on an investment
What are the conditions in which you can withdrawal 100% of your Roth IRA (after 5 years)
- over 59 1/2 years old
- death or disability
- first time home purchase (bad idea)
What is SEPP perfect for?
self-employed, small companies
Why shouldn’t big companies use SEPP?
For every employee that has been there for the last 3 out of 5 years, the same percentage of their pay must go into a retirement plan
Do not use a ___________ (GIC)
Guaranteed Investment Contract
You should roll to a Roth only if:
- you will have $70,000 by age 65
- can afford to pay taxes separately
- understand all taxes will become due on the rollover amount
Should you ever borrow on your retirement plan?
NEVER
What are the steps of baby step 4?
- fund 401 k to the match
- fund Roth IRAs
- continue to fund 401 k
At the point 15% of income is hit, stop.
What does ESA mean?
Educational Savings Accounts
What is the maximum contribution annually per child?
$2,000
What does UTMA stand for?
Uniform Transfer to Minors Act
What does UGMA stand for?
Uniform Gift to Minors Act
What are the 3 nevers of College Savings?
- never save using insurance
- never save using savings bonds
- never save using pre-paid tuition
What should you do instead of an ESA if you need the money in less than 5 years?
money market mutual fund
